The Israeli government is still formulating tough 2025 budget measures. In the meantime, a new regulation actually reduces purchase (Mas Recisha) tax on Israeli homes for new immigrants to Israel (Olim), commencing August 12, 2024 (Real Estate Taxation (Appreciation and Purchase)(Purchase Tax)(Amendment), Regulations 2024, number 11414).

Old Rules:

Before the new regulation was introduced, Olim were entitled to a 0.5% rate of purchase tax on the first NIS 1,988,090 and 5% above this level. This relief could be used twice: (1) for a residential home, and (2) for business or agricultural premises. These benefits could also be used for land intended for construction of such properties subject to various rules.

Issue:

This relief for Olim did not always prove beneficial in the case of homes. Under the general rules for single home owners (not just for Olim), it is possible to enjoy zero purchase tax on the first NIS 1,978,745, followed by rates of 3.5%, 5%, 8% and finally 10% on any excess over NIS 20,183,565 (in 2024).  In the case of people with more than one home, the purchase tax rates are 8% or 10%, the latter rate kicking in at NIS 6,055,070 (in 2024)

New Regulation:

The new regulation for Olim is effective from August 12, 2024 if they purchase their a home in the qualifying period from one year before entering Israel to 7 years after entering Israel, worth no more than NIS 20,183,565 and it is their only home. In such cases, on the first NIS 1,978,745 no purchase tax is generally payable.  On the next slice from NIS 1,978,746 to NIS 6,055,070, purchase tax of only 0.5% is payable. Above this amount, the purchase tax rates are the same as for other single home owners.

Only home:

Being the owner of only one home is not straightforward. It means the only home of the purchaser, or within 18 months after the purchase if the purchaser sells another home which was his only home before this purchase. But where the purchase was from a building contractor – if he sells another home, which was previously his only home before this purchase, within 12 months after the contracted handover date. If there is a handover delay due to circumstances outside the purchaser’s control – if he sells his old only home within 12 months after the actual handover date.

Qualifying period:

As regards the qualifying period for purchasing the home (one year before entering Israel and 7 years after entering Israel), if the purchased home was still being built by the seller (building contractor) who contracted to complete the construction. In this case, a construction period of up to three years prior to entering Israel may be disregarded, provided the purchaser receives an Oleh visa/A1 visa within 1 year after purchasing the home.

These are complex rules so legal advice should be obtained on all legal and tax aspects regarding the property. In Israel, property lawyers handle not only property title transfer but also the tax side at the relevant Israeli government authorities.

Miscellaneous rules:

For the purposes of this purchase tax relief, the purchased home doesn’t have to be lived in. But this relief is only given once. Nevertheless, the Oleh can still also receive the abovementioned business/agricultural premises relief. And someone who became an Oleh before August 12 may elect the old purchase tax regime if preferred. Again, legal advice should be obtained on all legal and tax aspects regarding the property.

To sum up:

Olim may now enjoy 0%-0.5% purchase tax rates on the first NIS 6,055,070 when purchasing an only home, subject to various conditions. They may also continue to enjoy 0.5% purchase tax on business/agricultural premises i.e. a double whammy. But the devil is in the details.

Wishing all our readers a happy Succot, with more time in a Succah than in a safe room.

As always, consult experienced legal and tax advisors in each country at an early stage in specific cases.

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(c) Leon Harris 15.10. 2024