Purchase Tax
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Purchase Tax

By Yair Givati, Adv.

 

I'm sure you have received plenty of unsolicited advice since thinking of buying  a home in Israel, whether from professionals or friends. But the truth is you should seek professional legal advice before purchasing your home in Israel! Planning the details will make the purchase  and process so much easier and smoother, and increase your likelihood of success. 

In this article  I would like to discuss certain aspects of the purchase tax when buying your home. Most people cringe and switch off when they hear the word “tax,” but possessing the knowledge to navigate the system is key – especially in Israel. This article will outline and explain the more common aspects of taxes people encounter when buying a property in Israel.

Purchase Tax 

In principal, when buying a property in Israel, you will have to pay a purchase tax to the government. There are no exemptions (as there are when selling a property – which I'll write about in a different article), but there are different rates, and planning ahead can make all the difference in the world and can literally save you hundreds of thousands of shekels. 

The main issue examined by the tax authority when buying a property is the question of residency. Until the end of 2013/beginning of 2014, Israeli citizens were entitled to tax benefits when buying a property even if they were not residing in Israel. After that point, the tax benefits are given to Israeli residents only (even if they are not Israeli citizens). 

Purchase Tax Rates

As of 2014, the regular tax rates when buying a property starts from 8% and can go up to 10% (depending on the purchase price). 

Single Residence Benefit - If you do not own an apartment in Israel, or if you own one but are looking to upgrade and sell your current one, as long as you are an Israeli resident, you are entitled to start with lower rates (0%, 3.5% and 5% - depending on the tax bracket). As a side note, depending on the purchase price, you might still reach the tax bracket of 8% and 10%. 

In general, you are only entitled to receive these benefits if you are an Israeli resident at the time of the purchase. . There are two exceptions to this rule:

1.      If you become an Israeli resident within two years of the purchase, you are entitled to get the lower tax brackets, and can claim the difference back. 

2.      If you make Aliyah within one year of the purchase (and up to seven years post-Aliyah), you are entitled to receive a special Aliyah benefit, and can claim the difference back. 

Aliyah Tax Rights 

If you are an Oleh, you will get a special benefit in the form of purchase tax brackets - 0.5% and 5% - depending on the purchase price, and as long as you are personally living in your apartment(not renting it out for example). That being said, this special Aliyah tax bracket is misleading. Don't be tempted to use this benefit right away for a couple of reasons: 

1.      As I wrote above, when a resident buys his/her first apartment in Israel, they are entitled to start with lower tax brackets: 0%, 3.5% and 5%. Aliyah benefits start from 0.5% purchase tax. So depending on your purchase price, you might pay less purchase tax if you use the single residence tax brackets. 

2.      The Aliyah purchase tax benefit can be used even if you already own another apartment in Israel and up to seven years post-Aliyah. So with careful tax planning, you could buy two apartments in Israel and avoid the regular tax rates, saving you significant costs in purchase tax.

Special Tax Rates

 if you are an Israeli resident, or become one within two years of the purchase, the tax brackets start from 0%. Therefore, as long as the purchase price is below the threshold stated in the law, you won't have to pay any tax.

Second, in certain areas in Israel, the Israeli tax law does not apply as long as you are not an Israeli citizen or resident. According to the tax system that applies in these areas, there is no purchase tax! Again, with careful tax planning prior to making Aliyah, you could avoid paying the purchase tax entirely! 

In conclusion

The Israeli tax system is very complicated in general, and specifically when it comes to real estate tax.  There are many different options and paths to take, and each one will result in a different tax result. To help you navigate the system, and receive the best tax planning, I strongly encourage you to use an experienced and knowledgeable lawyer to guide you through the process. So, I will say it one more time (that's it, I promise!), planning your Aliyah will make all the difference in the world. With the right guidance, it can ultimately save you hundreds of thousands of shekels. 

Side notes

·         The taxes, rates, benefits, and everything described in this article are as of the date the article been published. 

·         The tax in this article relates to apartments and their purchase. Buying land and/or other kinds of properties will be taxed differently. 

·         Amount in NIS were intentionally not written as they change yearly depending on the Index. 

 

Purchase Tax Rates for Residents with Single Residence 

Value in NIS

Tax

0 – 1,696,750 

0%

1,696,750 – 2,012,560

3.5%

2,012,560 – 5,192,150

5%

5,192,150 – 17,307,170

8%

17,307,170 and over

10%

 

Purchase Tax Rates for Additional Apartment or for Non-Residents

Value in NIS

Tax

0 – 5,194,225

8%

5,194,225 and over

10%

 

Purchase Tax Rates for Olim 

Value in NIS

Tax

0 – 1,788,285

0.5%

1,788,285 and over

5%