When buying an apartment in Israel, if the buyer already has one or more apartments and doesn’t wish to sell them, he or she are required by law to pay a higher rate of property purchase tax, ranging between 8% to 10% in cases where the apartment is priced at more than 5 million ILS.
However, when buying a shell property (an uninhabitable property, sometimes known as a “fixer-upper”), the rate of the property purchase tax required by law is only 6% of the property price. It is worth noting that usually when regarding residential apartments the property purchase tax is calculated by tax brackets and not by property price. The reason for that difference is that buying a shell property is considered a purchase of “other rights in property” which requires a rate of 6% in property purchase tax only.
When buying a new apartment from a contractor or a developer, it is important to consider these differences and to choose whether to purchase a shell property or a complete and fully developed property.
The difference in price between the two options can reach a few hundred thousand Shekels when regarding prime real estate in the center of Israel. Also, it is worth considering these options in cases where the buyer intends on making significant changes to the property regardless (which is quite common).
In certain situations (e.g., when the discount for buying the property from the contractor as a shell property is significant enough), it is more worthwhile to buy the (additional) property as a shell, and paying the 6% property purchase tax instead of buying the finished property and having to pay between 8%-10% in property purchase tax, depending on the tax brackets and the property price.
In any case, it is considered tax evasion which should be constructed attentively and in a cautious manner, but if done right, could save significant sums of money to the buyer of an additional apartment.
We encourage you to contact us and receive legal consulting before making significant decisions in matters of property.
Are you interested in consulting or in additional guidance? Please contact us.
Note:
This article provides general and preliminary information only and should not be construed in any event as legal counseling and/or as a substitute for legal counseling in respect of any case and its circumstances.
The above should not be relied upon without consulting with an Israeli lawyer before taking any action or making any decision. The above is true as of the date of its composition, and its veracity may change from time to time.
Distribution and/or duplication and/or photocopying of this document and/or part thereof without permission are prohibited.
