As a part of the 2013 budget process, the Israel Knesset made a number of major changes to purchase tax and capital gains tax calculations. The changes go into effect in January, 2014.
There have always been exemptions to the capital gains tax on the sale of residential units, regardless of the number of properties you owned. One such exemption allowed you to sell a property once every 4 years without being subject to a capital gains tax. Beginning in January, 2014, it won’t be so easy. In order to be exempt you will need to meet the following requirements:
- Prove that you do not own any property in your home country
- The property being sold is your sole residential property in Israel. If you have up to a 33% share in another property, the exemption is still available
- This was a residential property only, i.e., you used it for living and for investment
- You did not sell another property with 18 months of this sale, availing yourself of the capital gains tax exemption
- You are not selling to someone in your family or transferring the property to them as a gift
In all cases, the exemption applies only up to the 1st 4.5M shekels of the sales price. If you don’t meet any of these requirements, then you will have to pay the capital gains tax which is calculated according to a number of complex formulas. It is best to consult with your lawyer before listing your property so you are prepared in advance.
The government also made changes to the purchase tax law, targeting primarily higher-end, luxury properties in the hopes of dissuading foreign purchase of investment properties, many of which sit empty for the majority of the year. Here are the new brackets: (all in shekels)
- Up to 1,089,350 pay 5%
- Between 1,089,350 and 3,268,040 pay 6%
- Between 3,268,040 and 4,500,000 pay 7%
- Between 4,500,000 and 15,000,000 pay 8%
- Over 15M shekels pay 10%
The purchase tax brackets for Israelis are a little bit better. Your first purchase of a home priced up to 1,470,000 is purchase tax free. If you make Aliyah within two years of signing the contract of sale, you will be treated as an Israel citizen.
Still, it’s a great time to buy your home in Israel. And, as always, northern Israel is your best market for finding spacious residences at affordable prices. Don’t see what you are looking for on this blog? just be in touch and we can search for you.