On July 29, the Knesset Finance Committee approved an amendment to the real estate regulations on real estate benefits for new immigrants (olim). We will first explain the new amendment and then analyze whether it is beneficial or detrimental for olim. All numbers discussed below are approximate.
The Finance Committee approved the following amendment: Olim will be exempt from paying a purchase tax on the first 2m NIS. On the next 4m NIS, they will pay a purchase tax of 0.5%. Above 6m NIS, they will pay a rate of 8%, and above 20m NIS, they will pay a rate of 10%. If an oleh wants to buy a second property, they will have to pay an 8% purchase tax up to 6m NIS and then 10% above (the same rate that foreign buyers pay).
In comparison, Israeli residents who buy a primary residence are exempt from paying purchase tax on the first 2m NIS. They then pay 3.5% for the next 370,000 NIS, 5% for the next portion up to 6m NIS, 8% above 6m until 20m NIS, and then 10% above. If an Israeli wants to buy a second property, they have to pay an 8% purchase tax up to 6m NIS and then 10% above.
At first glance, the new immigrant tax rate looks like a benefit for olim, in comparison to the rate paid by Israelis. In addition, when buying on paper, one can make aliyah within 3 years of signing a contract of sale to take advantage of this discounted rate.
As expected, numerous government ministers lauded the new law as a means of embracing new immigrants and encouraging aliyah, and – also as expected – some members of the media have protested that this benefit will result in the loss to the government of millions of shekels.
Are the government ministers and media correct? The reality is that this new amendment is a compromise that was created to close a tax loophole, which will hurt some new immigrants and benefit many others.
Upon scrutiny, one notices that there are situations where the new law ends up obligating olim more tax than under the previous law – and, perhaps unsurprisingly, those are the situations where the tax office stands to gain the most money. To explain this phenomenon in real numbers, if one made aliyah and bought an extremely expensive property of 30m NIS, based on the old law they would have paid .5% on the first 2m NIS and 5% on the next 28m NIS. In contrast, the new amendment will change the rate to 0% on the first 2m NIS, 0.5% on the next 4m NIS, 8% on the next 14m NIS and 10% on the final 10m NIS. Thus, the new immigrants’ rate will hurt olim buying very expensive homes.
This new law also limits new immigrants’ tax breaks to only one property, which is the same number permitted for Israelis who are not olim. Previously, olim were able to receive tax breaks on two properties: one calculated at the Israeli primary home buyers’ tax rate (detailed above) and one calculated at the former oleh tax rate (provided that the properties were bought in that order and the immigrants would live in the home bought with the oleh benefit).
In summation, the new amendment has the following effect: For the majority of deals, which range from 2m to 6m NIS, the new olim rates will be beneficial to new immigrants. For very expensive properties, the new rate will be detrimental to olim. Finally, for olim buying two properties, the new law – which limits tax breaks to one property – will be disadvantageous.
For people who already made aliyah but have not yet bought homes, the regulations allow an election to be “grandfathered” into the old law. In addition, as the effective date of the new regulations is not yet clear, anyone in the process of making aliyah should inquire into their possible tax options.
I am grateful to attorney Gad Dishi for his astute initial analysis of this new amendment. To discuss details and tax implications, one can reach Gad at [email protected] or via whatsapp at +972-52-393-9389.
