On August 2013 the Israeli government, as part of its preparations for deficit reduction, approved a comprehensive reform in land taxation on real estate transactions in Israel.<\/p>\n
Anyone selling real estate in Israel is expected to pay Capital Gains Tax known also as “improvement tax” or “betterment tax” (unless meeting tax exemption criteria). Anyone buying real estate in Israel is expected to pay Purchase Tax. The Purchase Tax is applied in different proportion of taxation and in fixed increments and depends on the individual circumstances and on the price of the transaction.<\/p>\n
The reform will affect everyone holding real estate in Israel, and particularly foreign residents, owners of luxury properties (worth over NIS 4.5 million) and anyone holding a number of residential properties.<\/p>\n
Some of the changes came into force on August 1st<\/sup> 2013 while some will take effect only on January 1st<\/sup> 2014.<\/p>\n One should note that the presumption of the family unit in the Land Taxation Law, applies to seller\u2019s spouse or children (up to the age of eighteen) registered residential properties as well.<\/p>\n Following are the highlights:<\/p>\n Limiting the Capital Gains Tax exemption<\/span><\/b><\/p>\n Thus far, a Capital Gains Tax exemption was applied for a sale of a residential property (an apartment or a house) once every 4 years.<\/p>\n This exemption will be revoked as of January 1st<\/sup> 2014.<\/p>\n As of January 1st<\/sup> 2014 one may sell an apartment or house with a Capital Gains Tax exemption only when meeting all of the following conditions:<\/p>\n Another apartment (preventing qualifying for the exemption) shall not be taken into account if:<\/p>\n Or<\/span><\/p>\n Or<\/span><\/p>\n That is, anyone in possession of more than one apartment (which does not satisfy the conditions above) cannot sell an apartment with a Capital Gains Tax exemption<\/span>.<\/p>\n The Capital Gains Tax to be paid as of January 1st<\/sup> 2014 in respect of anyone who at this date holds a number of apartments will be calculated linearly so that for the period up to January 1st<\/sup> 2014 the seller will be exempt and from that date onwards a Capital Gains Tax of up to 25% will become payable. This calculation is also relevant for those that on December 31st<\/sup> 2013 were entitled to an exemption (as they have not sold another apartment over the past four years) and for those who were not entitled to such exemption.<\/p>\n During the transition period which begins on January 1st<\/sup> 2014 and ends on December 31st<\/sup> 2017, one can sell up to two apartments that will be subject to the linear calculation described above, when at least in one of the transactions, four years have passed since the seller has sold an apartment with a tax exemption (before the beginning of the transition period).<\/p>\n Foreign residents<\/span><\/b><\/p>\n Thus far, foreign residents enjoyed the option of selling apartments with a Capital Gains Tax exemption (similar to Israeli residents) and the option to buy apartments and pay a lower rate of Purchase Tax, in the event that the foreign resident did not have another apartment in Israel (as paid by an Israeli resident who does not have another apartment).<\/p>\n As of January 1st<\/sup> 2014 foreign residents can apply for a Capital Gains Tax exemption only if they provide a confirmation from the tax authorities in their country of residence according to which they do not have an apartment in that country. It is not clear whether one can apply and receive this type of confirmation from the tax authorities overseas and how this amendment will be implemented in practice.<\/p>\n As of August 1st<\/sup> 2013 foreign residents pay a higher Purchase Tax, similar to the one imposed on Israeli residents who own another apartment.<\/p>\n Luxury Apartments<\/span><\/b><\/p>\n Thus far, in cases where the seller was entitled to apply for a Capital Gains Tax exemption, there was no limit on the amount of the transaction for which the exemption was requested (excluding the special exemptions granted temporarily under a temporary order). In this manner, sellers of properties could have received an exemption for very expensive properties as well.<\/p>\n As of January 1st<\/sup> 2014, even in the event that a seller is entitled to receive a Capital Gains Tax exemption, the exemption will apply only up to the first NIS 4,500,000 of the sell price specified in the sale agreement. For any amount exceeding this amount, the seller will pay Capital Gains Tax.<\/p>\n The rate of the Capital Gains Tax in relation to the amount of consideration exceeding NIS 4,500,000 will be calculated linearly so that up to the period before January 1st<\/sup> 2014 the seller will be exempt and from that date onwards a Capital Gains Tax of up to 25% will become payable. As mentioned, the Gains Tax will be paid in proportion to the difference between the consideration and the sum of NIS 4,500,000 only.<\/p>\n Changes in the exemption for gifts to relatives<\/span><\/b><\/p>\n Until now, real estate could have been transferred as gifts to relatives, while the seller received a Capital Gains Tax exemption.<\/p>\n As of August 1st<\/sup> 2013 the exemption for gifts between siblings was revoked, unless the asset was received as a gift or as an inheritance from the parents of the transferor.<\/p>\n Furthermore, to date, the recipient of the gift was required to hold the apartment for a minimum period before its sale to qualify for a Capital Gains Tax exemption. The duration of this period depended on the identity of the gift giver, the recipient\u2019s identity, his marital status and whether he resided in the apartment being sold. This period was referred to as the \u201ccooling-off period\u201d. The cooling-off period was designed to prevent the transfer of real estate solely for the purpose of exploiting the Capital Gains Tax exemption.<\/p>\n The statutory cooling-off periods was extended and the recipient of the gift must reside in the apartment for at least three years before selling it with an exemption or alternatively hold the apartment for at least four years before its sale with a tax exemption in the event he did not reside in it.<\/p>\n In addition, in sale transactions of an apartment received by the seller as a gift, from August 1st<\/sup> 2013 until December 31st<\/sup> 2017, the gift giver<\/span> will be deemed as the seller<\/span>, for purposes of taxation.<\/p>\n This is a challenging situation for both the recipient and the giver of the gift.<\/p>\n In light of the above changes, what are our recommendations?<\/span><\/b><\/p>\n Note:<\/p>\n 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.<\/p>\n The above should not be relied upon without consulting with a lawyer in the field 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.<\/p>\n Advocate Tali Kessler is a partner in Rechnitz, Kessler & Co. Law Office & Notary engaged in the field of commercial law, real estate and land taxation.<\/p>\n Distribution and\/or duplication and\/or photocopying of this document and\/or part thereof without permission are prohibited.<\/b><\/p>\n The contents of this document should not be construed as counseling and\/or as a professional opinion of any kind.<\/b><\/p>\n","protected":false},"excerpt":{"rendered":" On August 2013 the Israeli government, as part of its preparations for deficit reduction, approved a comprehensive reform in land taxation on real estate transactions in Israel. Anyone selling real estate in Israel is expected to pay Capital Gains Tax known also as “improvement tax” or “betterment tax” (unless meeting tax exemption criteria). Anyone buying […]<\/p>\n","protected":false},"author":2,"featured_media":515,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[109,18],"tags":[],"class_list":["post-191","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-property-tax","category-real-estate"],"acf":[],"yoast_head":"\n\n
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