מס רכישה – Purchase tax (2nd property)

מס רכישה is a Purchase Tax, otherwise referred to as Stamp Duty Land Tax (SDLT) or Acquisition Tax, is as a one-off tax charge paid by the buyer on the purchase of land or real estate. The purchase tax is triggered each time there is a change in ownership. This article is about מס רכישה – purchase tax on second property purchased by an individual. However, how much you actually pay is calculated based on the following criteria:

– Type of property (commercial or residential)
– The value of the property
– The circumstances of the buyer (first-time buyer, Oleh Chadash, Company, etc.)

There are lower rates of purchase tax for first-time buyers, Olim Chadashim, and other eligible persons. However, the rates are higher for מס רכישה – purchase tax on a second property.

The background

Historically, the amount of the acquisition tax for the purchase of a second residential property was taxed based on the property value as follows:

So, a property with a value of ILS 8,000,000 would be subject to Purchase tax as follows:

First section: 5,525,070 * 8% = 442,006
Second section: (8,000,000 – 5,525,070) 2,474,930 * 10% = 247,493
Total Purchase Tax due: Total: 442,006 + 247,493 = 689,499

These high rates were intended to discourage investors in the Israeli residential property sector, and to curb the rise in prices allowing first time buyers an advantage.

Consequence on the Israeli real estate market?

The direct consequence has been that in some areas, the prices of residential property have largely stagnated. Which was the intended purpose, but it resulted in an unanticipated cascade of the following:

• Investors, for the most part, stopped buying residential property and instead invested in commercial property in Israel, or in investments abroad.
• Drastic drop in real estate purchases in Israel.
• Decrease in tax revenues on acquisition taxes and taxes on capital gains.

The goal was, to lower the price of residential real estate. As a result of which young people could buy their homes. But, with so many youngsters unable to pull together the 25% required down payment, this small difference did nothing towards helping them buy their first homes.

Want to calculate how much מס רכישה you’ll have to pay?

The Israeli Tax Authority have built a Purchase Tax calculation simulator just for you. The simulator is in Hebrew and whilst it can be used to provide a general guide to how much stamp duty you’ll have to pay, it’s always recommended that you take professional advice for an accurate result.

Income Tax Rates on Rental Income

An individual in receipt of rental income can choose any of the three tax route options.

– Marginal tax brackets
– 10% on gross rental income
– Exempt route (below threshold)Income tax on Israeli rental income