This article was written by Yair Givati, Adv., who is a lawyer at Haim Givati & Co. specializing in property tax, real estate transactions, as well as corporate and commercial law. For Israeli legal real estate advice, you can reach him via email at [email protected].

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, increasing 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 property in Israel.

Purchase Tax

In principle, 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 are not Israeli citizens).

Purchase Tax Rates

As of the end of November 2021, the regular tax rates when buying a property were raised, starting from 8%, and can go up to the 10% bracket (depending on the purchase price – see table below).

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 – NEW UPDATE

If you are an Oleh, you will get a special benefit in the form of purchase tax brackets. These brackets and other details relating to the Olim benefits were updated as of August 15^th, 2024. 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%. The new Aliyah benefits start from a 0% purchase tax rate.

According to the new and updated law, below are the new conditions and tax rates for Olim Chadashim:

1. While in the past, this right could have been used even if the Oleh owned other properties, as of August 15^th, 2024, the Aliyah rights can be used only if it’s the Oleh’s single residency.
2. The Aliyah rights cannot be used for purchases over the price of 20,183,565 NIS. Please see the new tax brackets for Olim in the table below.
3. While in the past the Aliyah right could be used only for an apartment/house in which the Oleh will be living, with the change, this is no longer the case, and Aliyah rights can be used also for an “investment” apartment which the Oleh will not be living in.
4. The old rates, as you can see below in the table, are still in effect if the Oleh is looking to buy a business including an agricultural farm.
5. Olim Chadashim who made Aliyah prior to the update in the new rates coming into effect (i.e., August 15^th, 2024), have the right to choose whether to use the Aliyah rights as they were prior to the change or as they are after the change.
6. Aliyah rights can be used for purchases where the agreement was signed up to a year prior to making Aliyah or within 7 years from the time the Oleh made Aliyah.
7. When buying a new construction, the time in which the apartment is under construction will not be counted in the one-year period stated above, as long as the Oleh made Aliyah no later than three years from the time the agreement was signed. Please note, that the fact that the apartment is not ready has no effect on the tax calculations.
8. If the Oleh served in the army during those 7 years, the time spent in the army is not calculated as part of those 7 years.
9. Olim who purchased their apartment prior to the new rates coming into effect, meaning the signing of the purchase agreement was prior to August 15^th, 2024, cannot benefit from the new rates.

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!

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 has 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.
• Tax amounts were intentionally not written in NIS as they change yearly depending on the Index.

Purchase Tax Rates for Residents with a Single Residence

Purchase Tax Rates for Additional Apartments or Non-Residents

New Purchase Tax Rates for Olim

Old Purchase Tax Rates for Olim

Disclosure: This guest post was written by Yair Givati, Adv. The content presented here reflects the information and opinions of the guest writer and not Nefesh B’Nefesh.

* Last updated on September 5, 2024 *