The recent approval of the Economics Arrangements Bill (i.e. the budget) has seen a number of significant changes to the taxation on the purchase and sale of land and property in Israel. The aim of this article is to summarise and make sense of these new tax laws which rather complicate matters when it comes to trying to purchase property or sell property. The information is based on our understanding of the amendments made to the law as well as advice and clarification given by the tax authority on their website.
Purchase Tax
1. Non-Israelis purchasing a first property will be charged tax at a rate as if they already own property UNLESS: Aliyah is made within 1 year of purchasing property.
2. Purchases over NIS 4,500,000 – will be charged an extra rate of tax. The tax rate will even reach 10% for the top slice of the most expensive properties.
3. The base rate of tax for non-residential properties is increased from 5% to 6%. 1% will be rebated if certain conditions are met.
4. There are no changes for Olim Chadashim as far as purchase tax is concerned.
5. Gifts to children/parents remain unchanged. Gifts between brothers will be subject to tax.
6. Purchasing Groups – previously, purchasing groups were taxed based on the value of the plot of land at the time
of purchase. The new tax reform will tax the group based on the value at the time when the building can be inhabited, i.e. upon receipt of form 4.
Capital Gains Tax
1. From 1.1.14 There will no longer be an automatic exemption from taxation for non-residents. If you are not Israeli you will need to produce certification from the local authorities in your country of residence that you do not own property in that country (in our opinion, most foreign tax authorities will not be able or willing to produce such certification). In other words, the definition of a single apartment for non-Israelis is no longer considered to be within the territory of Israel but is GLOBAL.
2. Previously, an exemption from taxation on the sale of residential property was granted provided that no exemption for a previous similar sale was claimed in the four years prior to the sale in question. This exemption is being rescinded, with effect of 1 January 2014, for anyone who owns two properties at the time of the sale. Seemingly this applies even if the house that is being sold has been the residence of the family.
3. From 1.1.14 capital gains exemption will be granted only to one who has held a single property for at least 18 months from 1.1.14 (so if you own several properties it may be an idea to sell one prior to 1.1.14.
4. Where an exemption does apply, properties sold for at least NIS 4.5 million will be subject to capital gains tax on the value above NIS 4.5 million.
5. A property sold after 1 January 2014, whereby an exemption would have been granted under old rules, will be taxed from 1 January 2014 for the appreciation from that date until point of sale. This is calculated on a linear basis, and is not based on the value of property at that date. As in the past, certain expenses including lawyer’s fees, realtor fees, and refurbishment expenses will be considered a tax deductable expense- so keep all receipts.The law then changes again in 2018– but let’s leave that for now!!
6. Transfers between first degree family members are exempt from capital gains tax only after a “cooling off” period has been served. This period has been extended to 3 years if the new owner resides in the property or 4 years if they did not. This is in addition to fulfilling the other conditions. Gifts from brothers/ sisters to other siblings will be subject to capital gains tax
7.Inheritance Tax: Here there are no changes, i.e. If the deceased was entitled to an exemption in capital gains tax so too will be the beneficiaries.
Summary
The new tax laws which were passed by the Knesset obligate everyone to consult with an experienced real estate attorney or accountant in order to be able to reduce the affect of the new tax law as much as possible.
Legal disclaimer:
The above is meant for informational purposes alone and should not be relied upon. As with all transactions an experienced lawyer should be consulted prior to the signing of any documents.
For consultations please email:simon@seitzlaw.net