Taxes and transaction costs on Israeli property

This is an orientation, not advice. Israeli property taxation is genuinely complicated, rates and thresholds are revised and index-linked, and the answer for any specific person depends on residency, on what else they own, and on how the deal is structured. Anyone acting on this needs their own adviser.

Purchase tax

Israel charges a purchase tax on the buyer. It is banded and progressive: the rate rises through slices of the price rather than one rate applying to the whole amount. There are different scales depending on the buyer's situation — someone for whom this will be their only home is assessed differently from someone who already owns residential property. A buyer who already owns a home, in Israel or abroad, is generally assessed on the higher additional-property scale. Some categories of buyer have their own rules again.

Betterment tax on a gain

When property is sold, tax is generally charged on the real gain rather than on the sale price. What counts as the gain, which costs may be deducted, and which exemptions are available depend heavily on circumstances: the seller's residency, how long the asset was held, and whether it was a home or an investment.

Rental income

Income from residential letting is reported under one of several tracks, which differ in whether expenses may be deducted and at what rate the income is taxed. Choosing between them is a real decision with real consequences, and is not something to settle from a web page.

VAT

A purchase from a developer is a purchase from a business, so VAT applies and is normally already inside the price quoted to a consumer. A purchase from a private individual is generally not a VAT transaction. This is one reason a new-build price and a second-hand price are not directly comparable.

The costs that are not taxes

• Legal fees for the buyer, and in new-build transactions sometimes a contribution to registration costs
• Broker commission, where a broker is involved
• Appraisal, where a lender requires one
• Registration of the rights, and of any mortgage
• For money arriving from abroad: transfer fees, conversion spread, and reporting obligations in both countries

Why this belongs inside the return calculation

Transaction costs are paid up front and reduce the amount actually working for you from day one. A return quoted before tax and before transaction costs is not the return anyone receives. When comparing opportunities, include these consistently or exclude them consistently — mixing the two is how two similar assets end up looking very different.

What changes

Rates, thresholds and exemptions are revised, and a figure quoted in an article is the fastest thing on a page to go stale. Check the current official tables at the time of a transaction, and take personal advice on your own situation.