Upcoming Changes in the Real Estate Sector: Treasury Set to Raise Purchase Tax and Capital Gains Tax

Nimrod Bossu, Nadlan Center

According to the draft bill published, the purchase tax brackets, updated annually based on the index, will be frozen from 2025 to 2027, as will the capital gains tax exemption ceiling for the sale of a single apartment or two low-value apartments. Currently, the purchase of a single apartment is exempt from tax up to a sum of approximately 1.98 million NIS, and the sale of an apartment is exempt from capital gains tax up to a ceiling of roughly 5 million NIS.

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The Ministry of Finance and the Tax Authority are beginning to implement the austerity plan recently presented by Finance Minister Bezalel Smotrich. This is to increase state revenues and reduce the deficit as part of the 2025 budget in the backdrop of the ongoing war. Last Sunday (Oct. 6), the Ministry of Finance published a draft law for public comments, proposing amendments to tax laws that are expected to significantly increase real estate taxes – purchase tax and capital gains tax. This would be done by freezing tax brackets updated annually for at least the next three years under current law. The draft law is open for public comment until October 27.

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The bill concerns the purchase tax brackets for a residential apartment, the capital gains tax exemption ceiling for selling a single apartment, the capital gains tax exemption ceilings for selling two low-value apartments, and the tax benefit ceilings for selling an apartment with building rights.

The proposal’s explanatory notes state that these amounts “are updated annually based on various indices set by law, which reduce the state’s tax revenues… It is proposed to establish a temporary provision regarding these sections and stipulate that the amounts will not be adjusted in the tax years 2025, 2026, and 2027.” The proposal further states that when the brackets are updated in 2028, they will be according to the January 2027 index.

According to the purchase tax brackets updated by the Tax Authority in January 2024 for single apartment buyers, which are proposed to be frozen for at least the coming years, no tax will be paid on the portion of the value up to approximately 1.98 million NIS, 3.5% tax will be paid on the portion of the value up to approximately 2.35 million NIS, 5% tax on the portion of the value up to approximately 6.05 million NIS, 8% tax on the portion of the value up to approximately 20.18 million NIS, and 10% on any value beyond that. For investment apartment buyers, the purchase tax is 8% from the first shekel up to approximately 6.05 million NIS and 10% beyond that.

The capital gains tax exemption ceiling for single apartment sellers, which is also set to be frozen, currently stands at 5,008,000 NIS. Any portion exceeding this amount is taxed at a rate of 25% on the appreciation.

The contents of this article are designed to provide the reader with general information and not to serve as legal or other professional advice for a particular transaction. Readers are advised to obtain advice from qualified professionals prior to entering into any transaction.

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