The Israeli law, especially the Land statute of 1970, considers land ownership in Israel, including vacant land, buildings and apartments, a premier property right that requires strict registration and preservation.
For this reason, Israel has developed a registration system of land rights, which is constitutive. The registry is the creator of ownership.
Each parcel of land is defined by its position. It is a part of a large block that has a unique number. The parcel itself also has a unique number of its own. In the case of a tenement, the house is defined as a condominium and each apartment receives it's unique number, a sub-parcel number. The combination of the block, parcel and sub-parcel number creates a unique identifier for each real estate property in Israel.
The department of Justice operates a Registration Office in which all ownerships are registered. The registration is public record and everyone can apply for a statement for a small fee.
In Israel, real estate property transactions require a binding document – an agreement - in writing.
In a real estate contract, you will find an exact identifier for the property. That allows for a peace of mind from a buyer's side since at least identifying the land and its owner is not an issue.
After the conclusion of the transaction, the new owner's rights are registered under his name at the land registration office.
As consultants to buyers of Apartments and Houses, we ensure that the sale contract includes the appropriate protection of the buyer and the buyer's money. To this end, we review and perform the following steps:
Our firm consults in acquisitions of new apartments from contractors, acquisitions of pre-built apartments "on paper".
Previously, it was a common practice in such acquisitions that the buyer would pay some of the contractor’s legal fees. Recently, the fee that the contractor is allowed to demand to cover their legal expenses was limited to NIS 5,000 + VAT.
It should be clear, even though the buyer pays the attorney of the contractor, the attorney is not a consultant of the buyer and has no fiduciary obligation to the buyer, but to the contractor only. Therefore, his or her presence is of no help to the buyer who needs the services of their own legal consultant .
In our role as consultants for buyers, we review and perform following steps:
As consultants of apartment and house sellers, we perform the following:
An apartment buyer in Israel is subject to Acquisition Tax. Currently, the tax rate is lower if the buyer has no other apartment at the time of the acquisition. If the apartment in question is not the only one in the buyer’s possession, the tax rate will be much higher.
The rate of Acquisition Tax when purchasing a sole apartment is 0% for about 1.6 million NIS of the amount paid for the apartment and then rises to 3.5%, 8%, and even 10% of the marginal amount paid, in the case of apartments purchased for about 16,000,000 NIS.
In all other cases, the rate of Acquisition Tax is much higher, starting at 8%, and may reach up to 10% for a marginal amount of less than NIS 5,000,000.
The tax brackets are updated periodically. An Acquisition Tax calculator may be found on the Israel Tax Authority website.
If a buyer sells the first apartment within 18 months of the day of buying the second one, they are entitled to the lower rate of Acquisition Tax.
When buying a commercial or agricultural property, including vacant land, the Acquisition Tax is usually 6% of the price paid.
On 1.1.2017, the Multiple Apartments Tax Statute came into effect. This new statute imposes a tax on those who own 2.49 apartments or more. The purpose of the statute is to encourage the sale of apartments purchased for investment, in order to increase the supply of apartments on the market.
The law states that whoever owns 2.49 or more apartments must pay a capital tax of 1% of the value of the apartments beyond the first 2 apartments, with a limit of 18,000 NIS per apartment per year. A taxpayer may choose which are the 2 apartments not subject to the tax. Owners of a part of an apartment and owners that will sell or buy an apartment within a year will pay a proportional amount.
There are certain reductions given to low-value apartments in peripheral areas. They are not discussed here.
An inherited apartment will not be counted during the first year after the death of the testator if it was not let at that time. If it was let, it will be included in the count of the apartments owned.
As of 2017, the responsibility to report ownership of apartments and to pay the tax due is imposed on taxpayers and therefore they have to apply to the tax authorities themselves or with aid of an attorney, to submit the appropriate declaration and pay the required tax.
A sale of an apartment in Israel is subject to Appreciation Tax. If you own only one apartment, you are exempt from this tax in most cases.
Other payments might apply, such as:
Acquisition of an apartment is subject to Acquisition Tax. There are certain exemptions and Tax brackets that may save a considerable amount of money for the buyer.
A detailed description follows.
Appreciation tax is a tax paid on the profit gained from the sale of an apartment. The tax rate depends on the period for which it was owned and can range from a marginal tax (income tax rate) to 20%. You can request to deduct any expenses incurred in connection with the property, such as renovation costs, payment for legal services and to real estate brokers from the profit.
If the apartment was leased during ownership, its original purchase value will be depreciated, whether depreciation was requested as an expense or not. That will increase the Appreciation Tax to be paid on sale.
An Appreciation Tax calculator can be found on the Israeli Tax Authority website.
There are a number of exemptions from the Appreciation Tax.
All the exemptions are subject to certain terms and should be considered on a case by case basis.
A person owning only one apartment can sell the apartment without paying the Appreciation Tax. Certain terms and conditions apply, such as:
Previously, there was an exemption if an apartment was sold once every four years. This exemption was revoked in 2013, and instead a linear tax was applied. If you were eligible for the "once every four years" exemption before its revocation, you will be entitled to a partial exemption, depending on the number of years you owned the apartment before the revocation of the exemption in relation to the number of years you owned it after the revocation. The Linear exemption is also subject to restrictions.
If an apartment was held for many years and is entitled to Linear exemption, the Appreciation Tax will be relatively low.
There is an exemption from Appreciation tax for the sale of an apartment that was inherited from a spouse or a parent. This exemption applies only if the deceased would have been eligible for an exemption if they sold the apartment during their lifetime.
There are more special exemptions not discussed here. For more information on those exemptions, you can contact us.
In reference to the Betterment Levy, “Betterment” is the increase of the value of a property due to official urban planning.
If the land, on which your apartment is built, gained more building rights than it had when you purchased the apartment, its value has probably increased.
In this case, you may be subject to betterment levy which is equal to half of the betterment of the land, when you sell the apartment.
Usually, apartments are not subject to Betterment levy, but it is not a rule, and the status of each apartment should be checked individually.
About 90% of the land in Israel belongs to the state. It is managed by the Israel Lands Authority, a body established by law to manage them.
Therefore, a large part of the apartments sold, new and second-hand, are built on state-owned land and their owners are actually long terms lessees of the land for a period ranging from 49 years to 198 years, including optional extensions.
In accordance with the various agreements signed over the years, the Israel Lands Authority has a right to charge a Consent Fee for each property transaction.
Permit fees are usually charged by the Israel Lands Authority when extending an existing building.
Usually, apartments in urban communities, cities, will not be subject to consent fees, but, as with Betterment levy, it is not a rule, and the status of each apartment should be checked individually.
Houses, both in urban communities and in agricultural communities, are more likely to be subject to Consent and Permit Fees, but here as well, the status of each house should be checked individually.
Consent and Permit Fees are also calculated in relation to the increase of the value of the land since the acquisition of the property.