The Israeli law, especially the Land statute of 1970, considers land ownership in Israel, including vacant land, buildings and apartments, a premier property right that requires strict registration and preservation.
For this reason, Israel has developed a registration system of land rights, which is constitutive. The registry is the creator of ownership.
Each parcel of land is defined by its position. It is a part of a large block that has a unique number. The parcel itself also has a unique number of its own. In the case of a tenement, the house is defined as a condominium and each apartment receives it's unique number, a sub-parcel number. The combination of the block, parcel and sub-parcel number creates a unique identifier for each real estate property in Israel.
The department of Justice operates a Registration Office in which all ownerships are registered. The registration is public record and everyone can apply for a statement for a small fee.
In Israel, real estate property transactions require a binding document – an agreement - in writing.
In a real estate contract, you will find an exact identifier for the property. That allows for a peace of mind from a buyer's side since at least identifying the land and its owner is not an issue.
After the conclusion of the transaction, the new owner's rights are registered under his name at the land registration office.
As consultants of buyers of Apartments and Houses, we ensure that the sale contract includes the appropriate protections of the buyer and the buyer's money. To this end, we review and perform these steps:
Our firm consults in acquisitions of new apartments from contractors.
Those are acquisitions of pre-built apartments "on paper".
The long time habit in these acquisitions is that the buyer pays some of the consultants of the contractor fees. Recently the fee that the consultant of the contractor is allowed to demand from the buyer was limited to NIS 5,000 + VAT.
It should be clear, even though the buyer pays the attorney of the contractor, the attorney is not a consultant of the buyer and has no fiduciary obligation to the buyer, but to the contractor only. Therefore his presence is of no help to the buyer who needs the services of a consultant of his own.
In our role as consultants of buyers we review and perform these steps:
As consultants of sellers of apartments and houses we perform these actions:
We insist on being the drafters of the contract.
We make sure that the buyer receives his collateral only after a major down payment.
We make sure that the buyer's obligation to pay the full price of the apartment will not be linked to his ability to raise the sun necessary for its acquisition.
We verify ownership of the property will not be delivered before the buyer has paid the full amount.
We verify the existence of sufficient compensation in the event of a material breach of the contract by the buyer.
We make sure that the seller assumes no unnecessary obligations towards the buyer or his financier, especially banks and mortgage providers.
A buyer of an apartment in Israel is subject to Acquisition tax. Right now the tax rate is lower if the buyer has no other apartment at the time of the acquisition. If that apartment is not the only one in one's possession, the tax rate will be much higher.
The rate of Acquisition Tax in the case of purchasing a sole apartment is 0% for about 1.6 million NIS of the amount paid for the apartment and rises to 3.5%, 8% and even 10% of the marginal amount paid, in the case of an apartment bought for about 16,000,000 NIS.
In all other cases, the rate of Acquisition Tax is much higher, starting at 8% and may reach up to 10% for a marginal amount of less than NIS 5,000,000.
The tax brackets are updated periodically. Acquisition Tax calculator may be found in the Israeli Tax Authority website.
If a buyer sells his first apartment within 18 months of the day of buying the second one, he is entitled to the lower rate of Acquisition Tax.
While buying a commercial or agricultural property, including vacant land, the Acquisition Tax is usually 6% of the price paid.
On 1.1.2017 the Multiple apartments tax statute came into effect. This new statute imposes a tax on those who own 2.49 apartments or more. The purpose of the statute is to encourage the sale of apartments purchased for investment, in order to increase the supply of apartments on the market.
The law states that whoever owns 2.49 or more apartments will pay a capital tax of 1% of the value of the apartments beyond the first 2 apartments, with a limit of 18,000 NIS per apartment per year. A taxpayer may choose which are the 2 apartments not subject to the tax. Owners of a part of an apartment and owners that will sell or buy an apartment during a year will pay a proportional amount.
There are certain relievers given to low-value apartments in the periphery. They are not discussed here.
Apartment received by inheritance will not be counted during the first year after the death of the testator if they were not let at that period. If it was let it will be included in the count of the apartments.
In 2017 the responsibility to report ownership of apartments and to pay the tax due is imposed on taxpayers and therefore they have to apply to the tax authorities themselves or with aid of an attorney, to submit the appropriate declaration and pay the required tax.
A sale of an apartment in Israel is subject to Appreciation tax. If you own only 1 apartment you will be exempted from that tax in most cases.
There are more payments that might apply, such as:
An acquisition of an apartment is subject to Acquisition Tax. There are certain exemptions and Tax brackets that may save a considerable amount of money to the buyer.
A detailed description follows.
Appreciation tax is a tax paid on the profit gained from the sale of an apartment. The tax rate depends on the period in which it was owned and it can range from a marginal tax (income tax rate) to 20%. You can demand to deduct from the profit any expenses incurred in connection with the property, such as renovation costs, payments to legal services and to real estate brokers.
If the apartment was leased during ownership, its original purchase value will be depreciated whether depreciation was demanded as an expense or not. That will increase Appreciation tax to be paid on sale.
Appreciation tax calculator can be found in the Israeli Tax Authority website.
There are a number of exemptions from Appreciation tax.
All the exemptions are subject to certain terms and should be considered on a case by case basis.
A person owning only one apartment can sell the apartment without paying Appreciation. Certain terms and conditions, apply, such as:
Previously there was an exemption if one sold an apartment once every four years. This exemption was revoked in 2013, but instead was applied for the linear exemption. If you were eligible for the "once every four years" exemption before its revocation, you will be entitled to a partial exemption depending on the number of years you ware owning the apartment before the revocation of the exemption in relation to the number of years you owned it after the revocation. The Linear exemption is also subject to restrictions.
If an apartment was held for many years and is entitled to Linear exemption, Appreciation tax may be rather low.
There is an exemption from Appreciation tax for the sale of an apartment that was inherited from a spouse or parent. This exemption applies only if the deceased would have been eligible for an exemption if he was alive, and sold the apartment.
There are more special exemptions not discussed here. For more information on those exemptions, you can contact us.
For the purpose of Betterment Levy, Betterment is the increase of the value of a land due to official urban planning.
In the event that the land on which your apartment is built gained more building rights than it had when you purchased the apartment, its value has probably increased.
In this case, you may be subject to betterment levy which is equal to a half of the betterment of the land, when you sell the apartment.
Usually, apartments are not subject to Betterment levy, but it is not a rule, and the status of each apartment should be checked individually.
About 90% of the land in Israel belong to the state. It is managed by the Israel Lands Authority, a body established by law to manage them.
Therefore, a large part of the apartments sold, new and second hand, are built on state-owned land and their owners are actually long terms lessees of the land for a period from 49 years to 198 years, including optional extensions.
In accordance with the various agreements signed over the years, the Israel Lands Authority has a right to charge a Consent Fee each transaction of land or apartment.
Permit fees are usually charged by the Israel Lands Authority when one wants to extend an exןsting building.
Usually, apartments in urban communities, cities, will not be subject to consent fees, but, as with Betterment levy, it is not a rule, and the status of each apartment should be checked individually.
Houses, both in urban communities and in agricultural communities, are more likely to be subject to Consent and Permit Fees, but here as well, the status of each house should be checked individually.
Consent and Permit Fees are also calculated in relation to the increase of the value of the land since the acquisition of the property.