Saving on Purchase tax
Is saving on Purchase tax possible? In every real estate transaction for residential real estate, the purchaser pays “Purchase tax”. The tax is calculated differently depending on the status of the purchaser. Is he a foreign resident? Is he an Israeli resident? Is the apartment being purchased his only apartment? Is the apartment being purchased an additional apartment (an investment property)?
Here are three basic rules to remember:
- If the apartment being purchased is the only apartment and the purchaser is an Israeli resident, then the purchase tax is lower.
- If the apartment being purchased is an investment property (the purchaser already owns another apartment in Israel) or the purchaser is a foreign resident, regardless of whether he owns an apartment in Israel, then he pays a higher purchase tax.
- There is no total exemption from purchase tax, only partial exemptions. However, sometimes the tax can come to zero.
Saving Purchase tax:
Here are a few examples of how to save money on the purchase tax:
- Example number 1: If the seller is leaving major appliances, furniture, light fixtures and other items then make a list of those items and set a price on them. Deduct this price from the overall price of the apartment in the contract. Since the purchase tax is a certain percentage of the price this will bring down the tax. You are not taxed on the items on the list.
- Example number 2: If you have bought the apartment while living abroad you will pay the higher purchase tax. If you make aliya within a year of signing the contract and this is your only apartment in Israel, then after living in Israel for six months you can apply to the tax authority to have them correct the calculation of the tax to that of an Israeli with one apartment. This will bring down the tax and you will get a refund linked to the index with interest.
- Example number 3: If you own an apartment in Israel and have made aliya and decide to purchase another apartment as an investment (without selling your current apartment) you can ask for a partial exemption from purchase tax as an Oleh if the second apartment is purchased within seven years of making aliya. The catch is that you must live in that apartment.
- Example number 4: If a young couple is purchasing an apartment but one of them owns an apartment from before the marriage, then the other spouse can pay the lower tax on his or her half of the apartment. The couple must have a prenuptial agreement or an agreement made after the marriage which sets out how assets are divided in the case of absolution of the marriage and this contract sets out that the apartment of that spouse stays with him.
- Example number 5: The above is also true in the case where one of the spouses inherits an apartment. Please see this previous post that explains in-depth the rules about the Family unit and purchase tax.
- Example number 6: If you are purchasing an apartment and for whatever reason, you are required to pay the higher purchase tax then you can register the apartment in the name of a child (above the age of 18) who would be entitled to pay the lower purchase tax. However, if this is done thought must be given to how this affects the tax this child will pay when purchasing his own apartment. If this child is married, then he should make a will and agreement with his spouse that will take care of what happens to this apartment in the event of divorce or death of the child.
- Example number 7: If you or a member of your family unit (spouse, or minor child) have a disability that is recognized as such by the Israeli Social Security (BItuach Leumi) then you may be entitled to a partial exemption from purchase tax.
Don’t try this at home by yourself! Always consult with an Israeli real estate attorney before making any such decisions about purchase tax planning.
To see the purchase tax levels in effect now please click here.
Nicole Levin Law Offices