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  • Avi Unterman

Keep your eyes on this one - a proposed property tax update

You should always get the most up-to-date advice about upcoming tax changes if you're planning on buying or selling a property. The Knesset just issued for public commentary an important update to the property taxes that might impact you. It isn't ready for implementation yet but watch this space carefully!


The highlights are:


  • Raising the lowest beneficial tax brackets on sole purchasers of less costly apartments, thereby lowering their total tax liability and lowering the rates at which the higher brackets commence, thereby increasing the tax on higher-end purchases. The new brackets would be: 0% through the first 1,930,000 shekels, 3.5% from that amount to 2,330,000 shekels, then 5% on the next range to 3,100,000 shekels, 8% to 5,300,000 shekels and 10% on anything above that. The current brackets are 0% to 1,747,865, 3.5% to 2,073,190, 5% to 5,348,565, 8% to 17,828,555 and 10% on anything above that amount. I have a custom-built spreadsheet showing all these differences.

The proposed tax brackets

The first 1,930,000 shekels

0%

From 1,930,000 to 2,330,000 shekels

3.5%

From 2,330,000 to 3,100,000 shekels

5%

From 3,100,000 to 5,300,000 shekels

8%

On anything above 5,300,000 shekels

10%


  • Canceling ALL capital gains tax discounts on sales and income tax exemptions on rental income for foreign owners. The tax authority estimates some 83,000 apartments in Israel are foreign owned of which 40k are in Jerusalem and Tel Aviv. These discounted rates are social benefits that should be granted only to Israeli resident owners of low-end properties – high-end properties / rentals are currently not entitled to any of these tax discounts. Starting in 2024 these discounts will also no longer apply to properties sold or rented out by foreign owners. An Israeli resident who sells their property while living abroad can still be entitled to the discounted rates if the sale occurs within 5 years of ceasing to be an Israeli resident.


  • Reducing the overlap period between buying one place and selling another - where both properties are considered "sole" properties - to only one year, down from the current two-year overlap (it was 18 months up until July 2021).


  • Closing the "Maatefet" loophole – under the current regime if an investment or high-end buyer purchases a skeleton structure and not a residential property the purchase tax is only 6% like any other non-residential property and not 8-10%.


  • Canceling the "linear" discount for apartments built on land owned prior to 2014 – this may be granted a delayed start for 4 years to encourage development and sale of the land at the current discounted tax rates.


  • Imposing "Mas Yesef" – high earners tax (of 3% above 650k annual income) on a greater range of property sales. The gains are considered income tax for catapulting someone into the high earners bracket for the year the property is sold.


  • Temporarily reducing capital gains taxes for residential land owned prior to November 2001 to encourage the sale and development of such land. There will be a 3-year window to sell the land at a discounted tax rate provided the buyer builds the residential properties within 8 years. The earlier the buyer completes the development the bigger the tax savings for the seller. The tax benefits decrease per year if it takes longer than 4 years to finish the development. The goal is to encourage the sale and development of residential land at a reduced tax rate.

More updates to follow – stay tuned so you can know as soon as I know!


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