Reminder: Israel government has reduced the purchase tax for investors
For the last few years, the real estate purchase tax for investors was 8% or 10% for properties over 5.3 million NIS. In summer 2020, Israel Katz, who was then The Minister of Finance, ordered a reduction in the purchase tax for investors.
For your information, currently (as for 2021) the tax brackets stand as follows:
For properties up to a value of 1,294,770 NIS (~400k USD) the tax is 5%.
The second tax bracket is 6% on the part of the value up to the amount of 3,884,295 NIS.
The third tax bracket is 7% on the part of the value up to the amount of 5,348,565 NIS.
The fourth tax bracket is 8% on the part of the value up to the amount of 17,828,555 NIS.
The fifth and the last one is 10% on anything above the previous tax bracket.
For example, for a property worth 1 million NIS, the tax will be 50 thousand NIS. For a property worth 2 million NIS, the tax will be 5% of 1,294,770 (64,738) plus 6% on the difference (42,314), which is 107,051 NIS.
Who benefits from the tax reduction?
Since this tax is valid for 2nd property only, investors' benefit is great. Saving tens of thousands of shekels, the lowered tax encourages investors to buy different properties and enjoy the higher ROI. For example, buying an apartment for 1 million saves you 30 thousand shekels, paying 50 thousand tax instead of 80 thousand, and buying an apartment for 2 million saves you about 55 thousand shekels!
Are there any investment methods with no purchase tax at all?
Fortunately for you, there is a special program, InCome Home, which allows investors to get the most of their investments by lowering costs and increasing profits, and helping local families get their first home! It also allows you to invest smaller sums, starting at 250 thousand NIS, whereas the usual way requires a minimum of 1 million NIS.
What about the purchase tax for the first or a single apartment?
Purchase tax for the first or a single apartment remains as it is, without changes. As of 2021, for Israeli residents, purchase tax on the first or only apartments is calculated according to tax brackets as well.
On the part of the value up to NIS 1,747,865: 0%
On the part of the value between NIS 1,747,865 - NIS 2,073,190 - 3.5%
On the part of the value between NIS 2,073,190 - NIS 5,348,565 - 5%
On the part of the value between NIS 5,348,565 - NIS 17,828,555 - 8%
On the part of the value above NIS 17,828,555 - 10%
For example, for a property worth less than 1.74 million, Israeli residents won’t pay purchase tax. For a property worth 2 million, Israeli residents will pay 3.5% on the difference (2,000,000 – 1,747,865), which is only 8,824 NIS.
The discount is valid exclusively for your first apartment (means you’ve never owned one) or a single one (which means you currently own no other properties in Israel). This means that if you sell your first or only apartment, you can buy another one and enjoy the discount, as long as it stays your only apartment. If you buy a new apartment before selling your current one, you still can enjoy the discount, but you have to sell the first apartment within 24 months from the date of buying the new property.
Keep in mind that this purchase tax discount is only valid for Israeli residents. Therefore, if you are an Israeli citizen but you are currently living abroad, you are not entitled to this discount and are required to pay the full purchase tax. However, if you intend to return or are about to make an Aliyah, you may be eligible for a tax refund, so if you were thinking about purchasing a property prior to making an Aliyah, you shouldn’t worry about the purchase tax. In any case, to avoid unnecessary mistakes, we highly recommend consulting a real estate lawyer, who is experienced with foreign residents.
What about the future of real estate taxation?
The new government, which took office about 6 months ago, is trying to solve the housing cost problem, and raising taxes is always an option. In other words, if you have been thinking about investing in real estate in Israel, now is the right time to save some money and make the most out of your shekels.
Looking for a good investment?
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Can a foreigner buy and own a property in Israel?
Yes. Foreigners, non-citizens, and non-Jews can buy and own property in Israel. Generally speaking, foreigners can only own properties built on private land, which makes up about 7% of Israel’s land. However, there are always exceptions and ways to overcome these obstacles.
Can I purchase a property in Israel without visiting (remotely)?
Yes, you can buy a property in Israel remotely, and it is not complicated at all. If you purchase a new project under construction, all you get is illustrations and floor planning. It makes no difference whether you check them here, sitting in our office, or at any other location in the world, from the comfort of your personal computer. For constructed properties, we offer VR (virtual reality) tours and video calls, so that you can check every option on your PC or tablet. We will help you find the property, and our lawyers will take care of the legal part, including the payments via the Trust Account.
If you have any other questions regarding investing in Israeli real estate or about purchasing a property, please feel free to contact us, and we will be glad to help you out.
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