Returning Residents Caught Out

Returning Residents Caught Out

Returning residents who lived away from Israel for 10 years generally enjoy the same 10 year Israeli tax exemption for foreign income and gains as new Olim residing in Israel for the first time. But in the case of Israeli residential property, it can be a different story.

The real estate tax tribunal has just ruled that second-time Olim don’t always qualify for purchase tax relief on their home in Israel, even if they didn’t get the relief in their first Aliya incarnation (Temsot vs. The Real Estate Tax Director, 7590-03-21, issued September 23, 2022).

What is the purchase tax situation?

Like other countries, Israel taxes not only sellers of real estate, it also imposes a tax on the buyer. Currently in 2022, the purchase tax rates are as follows.

  • Single home owners: First NIS 1,805,545 – 0%; NIS 1,805,545-2,141,605 – 3.5%; NIS 2,145,605-NIS 5,525,070 – 5%; NIS 5,525,070-NIS 18,416,900 –  8%; thereafter – 10%.
  • Multiple home owners – less generous: First NIS 5,525,070- 8%; thereafter – 10%.
  • Olim: First NIS 1,902,945 – 0.5%; thereafter 5%.

Different rates apply to agricultural and commercial property. Note that the Aliya rate is never zero, always at least 0.5%.

Main facts of the case:

This case concerned a couple who were both born in Morocco. The husband made Aliya to Israel in October 1962, became an Israeli citizen under the Law of Return, but left Israel in June 1963. The wife visited Israel in June 1964 under the Law of Return but left Israel 3 months later. Both then lived in France and only started visiting Israel again at in 2007 at least once a year. In 2014 they started living in Israel, after the Interior Ministry asked them to sort out their status, including identity cards and passports. Both claimed they forgot they were already Israeli citizens since the 1960s and nobody bothered to remind them.

On the property side, they bought an Israeli property in 2004 as foreign residents and tried to claim the Aliya purchase tax relief when they bought another Israeli property in 2018. Their claim in 2018 was rejected on the grounds they didn’t meet the conditions for purchase tax relief.

What are the purchase tax relief conditions?

Section 12 of the purchase tax regulations allows the Aliya 0.5%/5% purchase tax rates to an Oleh buying a home within one year before to seven years after first entering Israel to live, not counting time spent on IDF conscription service and national service. This may also apply to commercial or agricultural property used in a business and land with building rights (first 1000 square meters) – but only once.

Significantly, the regulations apply to someone entering Israel with an Oleh visa under Sections 2 or 3 of the Law of Return or an A1 temporary residence visa. The regulations also allow returning residents designated by the Finance Minister to be treated like first time Olim.

On May 17, 1992, the Finance Minister issued a notice (Yalkut Hapirsumim 4019) treating returning residents as Olim for purchase tax purposes only if the Tax Director is satisfied that that at the time of their first period of residence in Israel: they held an A1 temporary visa, or served in the IDF as conscripts, or were a student or visiting lecturer or expert as defined in the income tax regulations.

Case judgement:

The Tax Tribunal rejected the couple’s claim for the 0.5%/5% purchase tax rates for the property purchase in 2018 because they didn’t meet the conditions for returning residents as a matter of fact. The first time around they were citizens, not A1 visa holders, soldiers, students, lecturers or experts. What was written in in the law mattered more than whatever the Knesset might have intended. Moreover, the Tax Tribunal surmised they must have known this given their long period of acquaintance with Israel since buying a home there in 2004.


It remain to be seen whether the taxpayer couple appeal the case.

If you are an Oleh or returning resident, you should check out all possibilities with your property lawyer. You can also try out the Israeli Tax Authority’s simulator at:

The result is not always intuitive. For example, for a residential home costing NIS 2.5 million, the purchase tax may vary as follows: NIS 29,682 for an only home, NIS 200,000 for an additional home, NIS 39,368 for an eligible Oleh. So, in fact it doesn’t always pay to go for the Aliya rate even if you are eligible for it. But check each transaction in advance on a case-by-case basis.

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

(c) Leon Harris 8.11.22

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