The Knesset Finance Committee approved an amendment to the regulations for real estate taxation yesterday, resulting in an increased ceiling of the reduced purchase tax for those making Aliyah, which will go into effect shortly. For Olim purchasing a sole residential apartment for use as their home in Israel, they will pay a purchase tax of 0% for the first 1,980,000 NIS and 0.5% for the next amount up to a purchase price of 6 million NIS. Any amount above that mark will be taxed at the standard tax brackets.
The Olim (new immigrant) tax benefit had, up until now, remained largely unchanged, and the discounted 0.5% bracket for Purchase Tax (Mas Rechisha) had languished at a very low ceiling for years, prompting most Olim to forego the “benefit” as it was financially more worthwhile to file for the standard rate of an Israeli resident buying a sole apartment.
The new regulation will bring huge savings to Olim
Instead of paying 0.5% on the first 1,988,090 NIS of the purchase price and 5% on every shekel above 1,988,090 NIS, with new legislation, the buyer will pay no tax on the first 1,980,000 NIS and only 0.5% on the portion of the purchase price above that amount. A non-Oleh Israeli resident buying a sole property for 6 million shekels will pay 195,538 NIS, while an Oleh will pay just 20,100 NIS. By comparison, a foreign resident or an Israeli resident purchasing a second or more property will pay 480,000 NIS (8%).
The timeframes for taking advantage of this benefit remain unchanged: An Oleh must enter the country as an Oleh within 12 months from the date the purchase contract was signed (this period can be extended to a maximum of 3 years if buying a property under construction) or must be purchased within 7 years of the Aliyah date.
Israel Tax Authority to clamp down
Until now, the Oleh discount on Purchase Tax could also be used when an Oleh was buying a second or more property (meaning he/she already owned residential property in Israel before making Aliyah). That provision will now be canceled, and the discounted tax rate will ONLY apply to Olim buying their sole residential property in Israel. Additionally, while the law always held that the property must be for the Oleh’s personal residential use (i.e., not for investment to be rented out), the Israel Tax Authority is now much stricter on this requirement. It has recently begun demanding much more extensive proof that the property is being used as Oleh‘s main residence and not just a vacation home, effectively weeding out people making Aliyah “in name only.” Lastly, the Olim benefit will not apply to high-end properties with a price over 20 million shekels.
The changes will boost buyers’ chances of making their homes in Israel and create a welcome incentive for all new Olim. Regarding the new legislation, Finance Minister Bezalel Smotrich said: “The State of Israel embraces the immigrants. Especially at this time, we as a country need to do everything possible to make it easier for new immigrants from around the world who are returning home. Today, we took another important step for the sake of the immigrants and the State of Israel. I thank the Tax Authority, the Minister of Immigration and Absorption Ofir Sofer for his important work, and the Chairman of the Finance Committee for mobilizing for the just step.”
Minister of Immigration and Absorption Ofir Sofer welcomed the move: “This is good news that will help the many immigrants adapt to Israel and will encourage those interested in immigration to make a decision and immigrate to Israel. Since the beginning of the war, immigration to Israel has continued, and interest is growing. The Ministry of Immigration and Absorption is working fully to facilitate the immigrants in various areas, including housing assistance, Hebrew studies, a community envelope, and academic studies.”
Use the Buyitinisrael Tax Calculator to calculate the tax due on your home purchase in Israel. The calculator will be updated when the tax changes go into effect.
Jane Olman, Adv. is a partner at the law offices of Rachlin & Olman in Jerusalem, where she specializes in Israeli real estate law. With more than 20 years of experience, Jane has earned an unparalleled reputation for guiding English-speaking clients through the legal processes in Israel. She can be contacted at [email protected].
