Splitting Family Property? Why a “Gift” Between Siblings May Not Be Tax-Free

When a brother and sister each gave up their share in one apartment so the other could own an apartment outright, they believed that, as family members exchanging property with no money changing hands, they would not owe a betterment levy. The Tel Aviv-Yafo Magistrate’s Court disagreed. Because each transfer was made in return for the other, the court treated the deal as a swap for value rather than a gift between relatives, and ordered the siblings to pay the levy. For anyone who co-owns property with family members, the ruling is an important reminder that “no money changed hands” does not automatically mean “no levy.”

By Adv. Karin Yitzhaki, Gindi-Caspi & Co. Law

In this case summary, we review a ruling by the Tel Aviv-Yafo Magistrate’s Court that dealt with the following legal question: when a brother and sister transfer rights to each other as part of an agreement to end their joint ownership of real estate, does this count as a “realization of rights” that requires payment of hetel hashbacha (betterment levy)? The court held that when each transfer is made in exchange for the other, and on condition of the other, the deal is an exchange transaction for value, and not a transfer between relatives made without anything in return. This is true even when no money or balancing payments change hands. Accordingly, the transfers were subject to the betterment levy.

Background:

The betterment levy is a charge the local planning committee collects when a property increases in value because of a new planning scheme. As a general rule, the obligation to pay the levy arises when the property increases in value. However, the actual payment date is the time of “realization of rights,” since until then payment is effectively deferred. Under Section 1 of the Third Schedule to the Planning and Building Law, 5725-1965, and subject to the conditions and exceptions set out in the law, “realization of rights” can happen in one of three ways: receiving a building permit; actually starting a use that was first permitted under the plan that increased the property’s value; or transferring rights in the property. However, when it comes to transferring rights, the law excludes a transfer made without consideration (that is, with nothing given in return) from a person to a relative, as “relative” is defined in the Schedule.

The Facts of the Case:

During his lifetime, the late father of the defendants, a brother and sister, gave them three apartments in Tel Aviv, and the two were registered as joint owners. The sister lived in one apartment, the brother lived in another, and the third was used by both of them. In July 2017, the siblings signed an agreement to end their joint ownership of two of the apartments. Under the agreement, the sister would transfer her share in one apartment to her brother, and at the same time the brother would transfer his share in the other apartment to his sister. As a result, each of them would become the sole owner of one of the three apartments.

It was not disputed that the property had increased in value in a way that gave rise to a betterment levy, and that, in principle, a levy was owed. Indeed, the Tel Aviv-Yafo Local Planning and Building Committee issued a payment demand for the betterment levy on the transfer of rights, arguing that the transfers between the siblings were a “realization of rights” as defined by law. The siblings, on the other hand, argued that these were transfers between relatives made without anything in return, and were therefore excluded from the definition of realization of rights.

The Legal Question:

Are mutual transfers of rights between a brother and sister, made as part of ending their joint ownership and involving no money or balancing payments, considered transfers “without consideration” that are excluded from the definition of “realization of rights” under Section 1 of the Third Schedule to the Planning and Building Law?

The Court’s Ruling:

The court accepted the municipality’s claim and held that, even though this was a division of jointly owned property, and even though the siblings had originally received the rights from their father as a gift, the mutual transfers between them were not transfers “without consideration.”

In its decision, the court looked at the true nature of the deal, and in particular at whether the transfers were made as gifts with nothing in return or as part of an exchange. It held that the agreement created mutual and parallel obligations: the rights in one apartment were transferred in exchange for, and on condition of, the transfer of the rights in the other apartment. Accordingly, the transfers were classified as an exchange transaction rather than as two separate gifts between relatives, even though no money or balancing payments were involved.

The court further added that the agreement served an economic interest for the siblings: moving from joint ownership to sole ownership, which allows each of them to manage his or her own apartment without needing the other’s consent. This economic interest strengthened the conclusion that the transfers were not made “without consideration.”

The court therefore ruled that the transfers met the definition of “realization of rights,” and that the date for paying the betterment levy had arrived. The siblings were held jointly and severally liable for the betterment levy, meaning the full amount can be collected from either of them, and were also ordered to pay legal costs and attorney’s fees.

Author’s Note:

The ruling highlights that when examining transfers of rights between relatives in so-called “gift” transactions, it is not enough to look at the title of the agreement or at the fact that no money was paid. What matters is the substance of the deal, and whether the parties’ commitments depend on one another (a standalone transaction versus mutual transfers that are conditional on each other). When one transfer is made in exchange for, and on condition of, another transfer, the deal may be considered a value exchange. In such circumstances, the exemption for transfers between relatives without consideration will not apply.

(Civil Case (Tel Aviv Magistrate’s Court) 22187-01-24 Tel Aviv-Yafo Municipality v. Ben-Zion Kadishman et al., judgment of the Hon. Judge Guy Haiman, February 25, 2026)