Yair Givati, Esq., is a lawyer at Haim Givati & Co. He specializes in property transactions, property management, corporate and commercial transactions.
I’m sure you have received plenty of unsolicited advice since thinking of making the big move to Israel. Whether from professionals or friends, you have probably heard so many people suggest “Plan Your Aliyah” that you must be starting to think people are paying them to say it! But the truth is, as cliché as it sounds, planning the details will make the transition and process so much easier and smoother, and increase your likelihood of success.
In this article, I would like to focus on planning your Aliyah – but from the perspective of purchase taxes. 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.
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 my next 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 were not Israeli citizens).
Purchase Tax Rates
As of the end of November 2021, the regular tax rates when buying a property were raised, and start from 8% and can go up to 10% brackets (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:
- 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.
- 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:
- 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.
- 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
At the beginning of the article, I wrote “In principle, when buying a property in Israel, you will have to pay a purchase tax to the government.” Here is why I stressed “in principle”:
First, 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.
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 benefit from 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.
- 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.
This article was published in August 2018.
Last Updated: 29 November 2021.