Israeli Minister of Finance Israel Katz’s plan to reduce purchase tax for investors has gone into effect.
Until now, under plans advanced by the previous Minister of Finance, Moshe Kahlon, for lowering housing prices and pushing investors out of the real estate market, the purchase tax for investors went up from 5% to 8% for an apartment that was not the purchaser’s sole apartment. The rise in purchase tax rates prompted a “flight” of investors and fewer transactions in the residential market, from a share of about 25% of the total real-estate transactions in the economy down to about 13% of total transactions. This led to an opposite outcome than the one predicted by Kahlon—housing prices went up instead of going down and the number of foreign investors in Israel decreased by more than 50% compared to previous years.
The new Minister of Finance decided to encourage re-entry of investors into the market and revert the purchase tax structure to its previous levels. On July 29, 2020, the new tax brackets for the purchase of a second apartment went into effect, as follows:
- Up to NIS 1,292,280 – 5%;
- Between NIS 1,292,830 and NIS 3,876,835 – 6%;
- Between NIS 3,876,835 and NIS 5,338,290 – 7%;
- Between NIS 5,338,290 and NIS 17,794,305 – 8%;
- Over NIS 17,794,305 – 10%.
According to the previous tax brackets, the purchase tax for an apartment valued at up to approximately NIS 5.2 million was 8% of the apartment’s value, and 10% for apartments valued above this sum.
This means savings of tens and even hundreds of thousands of shekels for investors wishing to purchase an apartment for investment. For example, an investor seeking to purchase an apartment for investment at a value of NIS 1.6 million would, under the previous tax brackets (at 8%), have to pay about NIS 128,000 in purchase tax, whereas under the new tax regime, the investor only has to pay about NIS 83,000 in purchase tax.
Lowering the tax burden, coupled with the coronavirus crisis that has stalled the residential market and decreased the number of transactions, is an excellent opportunity and presents an outstanding bargaining advantage for investors wishing to invest in a safe asset with few risks. This is certainly true for foreign investors who are not entitled to any benefits for the purchase of a single apartment, who may now be able to purchase an apartment for investment at a more attractive tax rate.
