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  • Writer's pictureGedaliah Borvick

Aliyah and Purchase Tax Savings

Updated: Dec 8, 2023


New building in Bet Shemesh (Gedaliah Borvick)

I was recently strategizing with attorney Yair Givati regarding how to best guide my client, we’ll call him David, who wants to make aliyah and purchase multiple properties. David wanted to buy a primary home in Jerusalem plus a pied-a-terre in Netanya near the water, and our conversation centered on devising a strategy to have him pay as little tax as possible.


Let’s first examine the various “mas rechisha” – acquisition or purchase tax – rates. Keep in mind that all numbers quoted in this article are approximates, and that they get updated annually to account for inflation.


Non-residents buying an apartment and Israelis acquiring a second unit pay purchase taxes at the rate of 8% for the first ~5.9m NIS, and then 10% above.


Israeli residents and overseas buyers planning on making aliyah within 12 months of signing the purchase contract who are purchasing a single residence, pay a purchase tax of 0% for the first ~1.9m NIS, then 3.5% for the next ~350k NIS, 5% up to ~5.9m NIS, 8% up to ~18m NIS, and 10% above.


The requirement to make aliyah within 12 months can be extended if one is buying "on paper" (or "off plan"). In this situation, one can pay the lower tax rate enumerated above if they make aliyah within 12 months after the builder receives the Certificate of Occupancy (Tofes Arba), but no later than 3 years from the date of signing the contract.


Finally, there is an Oleh rate of 0.5% for the first 1.85m NIS and then 5% above.

If you are planning to make Aliyah within twelve months after signing a contract to purchase an existing home, you can pay the lower of either the single residence or the Aliyah tax rate. If you buy “on paper” in a project under construction, you can take advantage of the lower Israeli rates if you make Aliyah before receiving Tofes Arba (certificate of occupancy) or within three years, whichever comes first.


Returning to our friend David, who plans to make Aliyah imminently and wants to purchase two apartments, Yair Givati suggested that he buy the first property using the single residence tax rates and then acquire the second unit using the Aliyah tax rate, as the latter rate can be used by an oleh for up to seven years after making Aliyah even if they already own another apartment in Israel. One caveat: property acquired using the discounted Oleh rate must be used by the purchaser and cannot be rented out to another family. Heeding Yair’s creative guidance, David bought two apartments and achieved significant tax savings.


Let me parenthetically mention a tax loophole for your consideration. Overseas buyers acquiring homes in communities in Judea and Samaria - such as Maale Adumim, Efrat, and Hashmonaim - can receive a full exemption from paying the purchase tax if they are neither an Israeli resident or citizen, nor are they planning on making Aliyah for minimally two years. Therefore, purchasing a home in Yehuda and Shomron prior to making Aliyah can save you significant money.


I highly recommend that clients retain an experienced attorney to guide them through the complicated Israeli tax system. Yair Givati is one of the outstanding real estate attorneys we recommend to overseas purchasers. If this article inspires any follow-up questions, please contact him at yair@givatilaw.co.il.

 

Gedaliah Borvick is the founder of My Israel Home (www.myisraelhome.com), a real estate agency focused on helping people from abroad buy and sell homes in Israel. To sign up for his monthly market updates, contact him at gborvick@gmail.com.

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