Since August 15, 2024, new immigrants have been entitled to a substantial tax benefit on buying a home in Israel, following an amendment to the purchase tax regulations.
The arrangement that was designed to assist new immigrants in the past was not optimal. The old regulation (regulation 12) stipulated that for any purchase of "rights in real estate" up to about NIS 2 million, purchase tax would be payable at 0.5%, rising to 5% above that amount.
In many cases, on the purchase of a residence for over NIS 2 million, the amount of purchase tax payable under regulation 12 did not confer any special tax benefit beyond that available to any Israeli resident buying a single home. A new immigrant who bought a home in Israel for NIS 3 million paid purchase tax of 0.5% on the first NIS 1,928,220, and 5% on the remainder, giving total tax payable of about NIS 50,000. An Israeli resident who bought a single residence for exactly the same amount paid purchase tax of about NIS 45,000.
Now, regulation 12a has been added to the purchase tax regulations, without regulation 12 being cancelled. Under the new regulation, a new immigrant who buys a residence will pay purchase tax at the following rates: on the first NIS 1,978,745 of the purchase price, no purchase tax will be payable at all; on the portion of the purchase price between NIS 1,978,745 and NIS 6,055,070, purchase tax will be payable at 0.5%; and on the amount over NIS 6,055,070, the rate of purchase tax will be in accordance with the rate applicable to any purchase of a single residence, that is, 8% up to NIS 19.575,755. The amounts are updated annually.
Attention should be paid to the following:
- The new regulation does not apply if the value of the residence exceeds about NIS 20 million. In such a case, the old regulation applies, the reason being that there is no desire to encourage the purchase of luxury homes and give tax breaks on them.
- The benefit applies if the immigrant buys the residence within a period of one year before the date of immigration to Israel and seven years after. The timing of the purchase is therefore very material.
- The benefit applies even if the residence is not used by the immigrant. This is a substantial relaxation, allowing the immigrant room to maneuver. It is possible to buy 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 disabled people, the disabled person must actually use the residence that is the subject of the benefit. Here, for some reason, the legislator chose to discriminate in favor of new immigrants.
- The benefit under the new regulation is given once only. This means that if an immigrant buys an additional residence for their use, they can take advantage of the old regulation, which remains in force.
The writer formerly worked at the Israel Tax Authority, and is the owner of a firm that advises on real estate taxation.
Published by Globes, Israel business news - en.globes.co.il - on August 25, 2024.
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