Tax in an Israeli Property Sale: Gains, Purchase and Betterment
A property transaction in Israel carries tax on both sides and sometimes a third charge. The seller faces capital gains tax and a betterment levy, the buyer faces purchase tax, and both face short filing and payment deadlines. This guide sets out what is taxed, the main exemptions, and what can no longer be planned once the contract is signed.
Capital gains tax
Capital gains tax is charged on the seller gain, not on the price. The gain is the difference between the sale value and the acquisition value, less deductible expenses and plus depreciation claimed. Deductible expenses include legal fees, agency commission, purchase tax paid on acquisition, fees, and investment that improved the property such as a renovation or an extension.
The rate on the real gain for an individual is 25 per cent. If the property is sold at a loss there is no liability. Keeping receipts through the years of ownership is therefore not a formality: every deductible expense without documentation raises the tax actually paid by a quarter of its amount.
Beneficial linear apportionment. For a property acquired before 1 January 2014, the gain accrued up to that date is exempt and the gain accrued after it is taxed at 25 per cent. On older properties this changes the outcome materially, and can turn a sale that looked expensive in tax terms into a worthwhile one.
The main exemptions
The two common exemptions are the sole residential apartment exemption and the inherited apartment exemption.
Sole apartment, under section 49B(2). The exemption requires that the apartment is the seller only apartment, that he has owned it for at least 18 months before the sale, and it is capped at a ceiling that is updated annually. An additional apartment counts if the seller share in it exceeds one third, or one half where that apartment was inherited. Note that spouses and children under 18 are treated as a single family unit, so an apartment owned by a spouse may defeat the exemption.
Inherited apartment, under section 49B(5). This exemption does not depend on how many apartments the heir owns or on exemptions used in the past, because the test is applied to the deceased. The three conditions are that the seller is the spouse of the deceased, a descendant, or the spouse of a descendant; that immediately before death the deceased owned only one residential apartment; and that had the deceased been alive and sold it, he would have been entitled to the exemption.
Sometimes a seller is not entitled to the exemption today but will be in a few months, for example because of the holding period. Checking before the property goes on the market, rather than after signature, is what makes that gap usable.
Purchase tax
Purchase tax falls on the buyer and is calculated as a percentage of the acquisition value in brackets. The brackets differ materially between a sole apartment and an additional apartment: for a sole apartment the first bracket is fully exempt, while for an additional apartment tax applies from the first shekel at a high rate. The bracket figures are published by the Tax Authority and are revised from time to time, so the table in force on the transaction date is the one to check.
Reliefs worth checking:
- New immigrants: reduced brackets, on the conditions and within the period set in the regulations.
- Disabled persons, victims of hostile acts and bereaved families: relief on conditions, on filing the appropriate form.
- Buyers upgrading their home: a buyer who acquires a replacement apartment before selling the previous one may still be treated as owning a sole apartment, provided the previous one is sold within the statutory period, 24 months for a second-hand apartment and 12 months from delivery for a new one from a developer.
Betterment levy
The betterment levy is not a state tax but a payment to the local planning and building committee, under the Third Schedule to the Planning and Building Law. It is charged on the increase in the value of the property that resulted from approval of a plan, the grant of a relief or permission for a non-conforming use, and the rate is half of the betterment.
The levy is not paid when the plan is approved but on realisation of the rights, meaning on sale of the property or on the grant of a building permit. A seller can therefore discover at the point of sale a liability created years earlier without his knowledge. Ask the local committee for a betterment assessment before the price is fixed, not after signature.
Where does betterment actually come from? A common example is building rights approved during the period of ownership: a right to extend a private house, or roof building rights in an apartment building. The right increases the property’s value even if the owner never used it, and the charge is collected on realisation. And it is worth knowing that the assessment is not the last word: there is often room to challenge a betterment levy assessment, including through the seller’s own appraiser or a referral to a decisive appraiser, and if the challenge succeeds the levy is reduced.
Section 19(c) of the Third Schedule provides an exemption for building or extending a dwelling with a total area of up to 140 square metres, where the building is intended for the owner or a relative to live in, subject to conditions. This is the common exemption, and its application is worth checking before assuming a liability exists.
Filing, payment and objection deadlines
The deadlines under the Real Estate Taxation Law are short, and they run from the sale date, which is usually the date the binding contract was signed rather than the date of delivery.
| Step | Deadline |
|---|---|
| Declaration to the Real Estate Taxation Director | 30 days from the sale date |
| Payment of the tax | 60 days from the sale date |
| Objection to the assessment | 30 days from service of the assessment notice |
| Appeal to the appeals committee against the decision on the objection | 30 days from service of the decision |
| Request to correct an assessment | Up to four years from the assessment |
Late filing attracts penalties and interest, which is why the declaration is normally filed by the parties lawyers immediately after signature. Note that a binding memorandum can also start the 30 day clock running.
What can still be planned
Most of the tax position in a property transaction is fixed before signature. After it, what remains is largely filing work. The points where there is still room:
- The timing of the sale relative to the holding period, the number of apartments in the family unit, and exemptions already used.
- Arrangements between spouses, because the family unit is tested as one.
- The order of steps when upgrading a home: what is bought and what is sold first, and the dates set for each.
- Collecting deductible expenses and receipts from every year of ownership, including renovations and tax paid on acquisition.
- Establishing any betterment liability with the local committee before the price is fixed.
This page is not individual tax advice. The tax outcome depends on the facts of the transaction and on each party circumstances, so a specific check before signature is what determines the result.
Every case is examined on its own facts. For a consultation with a lawyer from the real estate department call 02-5953322, send a WhatsApp message to 050-4411343 or leave your details in the form below, and we will get back to you as soon as possible.
What people ask most often
I sold my only apartment. Am I automatically exempt from capital gains tax?
When do the 30 days for filing the declaration start?
Which expenses can be deducted from the gain?
I have received an assessment I disagree with. What now?
I only discovered a betterment liability at the point of sale. Is that possible?
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Know the tax before the price is fixed
Tax planning happens before signature, not after. We accompany the transaction, prepare the reports and represent you before the tax authorities. Tell us about the planned transaction, and a lawyer from the department will accompany you.