Purchase tax is an Israeli tax imposed under the Real Estate Taxation Law (Appreciation and Acquisition), 1963. Purchase tax is levied on the buyer and is paid upon the acquisition of a real estate right in Israel. In the case of a residential apartment, it is sometimes levied at graduated rates. The tax rate varies depending on the value of the apartment and the number of apartments already owned by the buyer. The law contains exemptions and relief in certain cases; therefore, every individual case should be examined by a professional.
The Tax Authority has strictly defined who is considered a “purchaser” to prevent attempts to bypass the tax payment requirement. The “purchaser” is the individual themselves, their spouse, and their minor children (excluding a married child or a spouse living separately on a permanent basis, and excluding a child who has been orphaned from one or both parents). This definition describes the “family unit.” This definition may be excluded if there is a prenuptial agreement between spouses and documentation proving separation of assets.
One of the common reasons for a purchase tax exemption is when the buyer, who is an Israeli resident, owns only one residential apartment. This exemption may also be granted in cases where the buyer owns an apartment rented under a protected tenancy before 1997, a residential apartment in which their share does not exceed one-third, or an inherited apartment in which their share does not exceed one-half. As of today, housing upgraders who wish to benefit from the tax exemption for a single residential apartment are required to sell their previous apartment within 24 months from the date of purchasing the alternative apartment. In the case of purchasing a new apartment from a developer, they are required to do so within 12 months of receiving Form 4.
When purchasing real estate, a tax declaration form must be filed. If housing upgraders declare that they will sell their previous apartment within the required time frame, they are exempt from tax at that point. If, at the end of the period, it turns out that the previous apartment was not sold, they will be required to pay the tax plus linkage differentials and interest. Note that when purchasing a new apartment from a developer, the transaction value includes VAT.
Tax calculation tables and simulators are available on the Israel Tax Authority website. We recommend using them and taking into account that just as there are legal fees, brokerage fees, and costs for design and upgrading, there is also purchase tax in certain cases. The buyer must take this into account in all calculations regarding the feasibility of the transaction.
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