Recent Changes to Israel’s Purchase Tax Rates Explained
A few months ago, the purchase tax paid by new immigrants (olim chadashim) for the purchase of an apartment was changed. Everyone appreciates these changes because the tax has been lowered.
Every real estate transaction in Israel involves several types of taxes, the most common being purchase and capital gains taxes. The buyer pays purchase tax, while the seller pays capital gains tax. In this discussion, we will focus on purchase tax.
Recent Changes to Israel’s Purchase Tax Rates Explained
Purchase tax is calculated on a sliding scale, depending on the purchaser’s status. The tax rates differ for Israeli residents buying their only apartment, Israeli residents buying an additional apartment without selling their current one, and foreign residents. The current tax rates are at the following link: New Purchase Tax
There is no complete exemption from purchase tax, although in some cases, the tax can amount to zero. Additionally, there are specific situations where a discount applies, including:
- The purchase of an apartment by an oleh (new immigrant).
- The purchase of an apartment by a disabled person.
- The purchase of an apartment by the President of Israel.
- Purchase tax for a gift of an apartment between close relatives.
Until recently, when you crunched the numbers, the purchase tax for an Israeli resident buying their only apartment was lower than that for an oleh. For this reason, I would typically advise clients who had made Aliyah to opt for the purchase tax applicable to an Israeli resident buying their only apartment and save the partial exemption available to olim for the purchase of an additional apartment.
This has now changed. The purchase tax for an oleh is significantly lower than that for an Israeli resident buying their only apartment. To illustrate, let’s compare the purchase tax for an apartment costing 4,000,000 NIS:
- Purchase tax for an oleh (after 15/8/2024) buying their only apartment: 10,106 NIS
- Purchase tax for an oleh who bought before 15/8/2024 or who owns another apartment: 110,536 NIS
- Purchase tax for an Israeli resident buying their only apartment: 95,538 NIS
- Purchase tax for an Israeli resident with other apartments or a foreign resident: 320,000 NIS
How Olim Can Save: Key Tips and Insights
Olim can also receive the partial exemption if the contract is signed either up to one year before making Aliyah or within seven years after making Aliyah. As shown above, before the recent change in the law, an Israeli resident purchasing their only apartment paid less purchase tax than an oleh (95,538 NIS compared to 110,536 NIS for the oleh).
What defines an oleh? When is an apartment considered an “only apartment”? These are straightforward questions with complex answers. It is therefore essential to conduct tax planning with your real estate attorney before signing a purchase agreement.
If you purchase an apartment while still a foreign resident, you will initially pay the purchase tax applicable to foreign residents. After making Aliyah, you can petition the tax authorities for a refund of part of the tax based on your oleh status. The refund is adjusted for linkage and interest.
Here is the link to the Tax Authorities https://www.misim.gov.il/svsimurechisha/frmFirstPage.aspx?cur=1#nbb
