As of August 15, 2024, new immigrants will be eligible for a significant tax break when purchasing a home in Israel, following an amendment to the purchase tax regulations.
The arrangement designed to help new immigrants in the past was not ideal. The old regulation (Regulation 12) stipulated that any purchase of “real estate rights” up to about NIS 2 million would be subject to a purchase tax of 0.5%, rising to 5% above that amount.
In many cases, when purchasing a home for more than NIS 2 million, the amount of purchase tax due under Regulation 12 does not provide any special tax benefit beyond that available to an Israeli resident purchasing a single home. A new immigrant who purchases a home in Israel for NIS 3 million pays a 0.5% purchase tax on the first NIS 1,928,220, and 5% on the remainder, making the total tax due approximately NIS 50,000. An Israeli resident who purchases a single home for exactly the same amount pays a purchase tax of approximately NIS 45,000.
Now, Section 12A has been added to the Purchase Tax Regulations, without canceling Section 12. According to the new regulation, a new immigrant who purchases a home will pay purchase tax at the following rates: On the first NIS 1,978,745 of the purchase price, no purchase tax will be paid at all; on the portion of the purchase price between NIS 1,978,745 and NIS 6,055,070, a 0.5% purchase tax will be paid; and on the amount above NIS 6,055,070, the purchase tax rate will be according to the rate applicable to any purchase of a single home, i.e. 8% up to NIS 19,575,755. The amounts are updated annually.
The following should be noted:
- The new system does not apply if the value of the home exceeds approximately 20 million shekels, and in such a case the old system applies, due to the lack of desire to encourage the purchase of luxury homes and grant tax exemptions on them.
- This advantage applies if the immigrant purchases residency within a period of one year before the date of immigration to Israel and seven years after. Therefore, the timing of the purchase is of great importance.
- This benefit applies even if the immigrant does not use the dwelling. This is a significant relief that allows the immigrant some room for maneuver. It is possible to purchase an investment property using the new regulation, and an additional property to live in using the old regulation. In the case of tax benefits for persons with disabilities, the person with disabilities must use the dwelling that is the subject of the benefit. Here, for some reason, the legislator has chosen to discriminate in favor of new immigrants.
- The benefit under the new regulation is granted only once. This means that if the immigrant buys additional housing for his use, he can benefit from the old regulation, which is still in effect.
The author previously worked at the Israel Tax Authority and is the owner of a company that provides advice on real estate taxes.
This article was published in Globes, Israeli Business News – en.globes.co.il – on August 25, 2024.
© Copyright Globes Publisher Itonut (1983) Ltd., 2024.
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