Following the new law that came into force on January 1, 2017, we offer this article designed to help apartment owners in Israel.
Which owners must pay this tax?
The law orders that people with more than 249% of ownership rights in residential property in Israel will be subject to this tax.
In other words, if you have 2 apartments at 100% in your name, and own at least 50% of rights on a third apartment, you will fall into the category of owners liable to pay this additional tax.
What happens if the apartment is registered in your wife's name, or in the name of a child under the age of majority?
The law stipulates that you should think in terms of a "family unit". Consequently, apartments registered in the name of your wife and/or minor children will be added to the total amount of your apartments.
How do you define "property"?
Ownership means any right of ownership in a residential apartment.
Such as: ownership, leases of more than 25 years, authorization to use land (all in accordance with the definition of land rights in the Land Law in Israel - חוק מיסוי מקרקעין).
What qualifies as a "residential apartment"?
A residential apartment is an apartment, or part thereof, that has been completed in its construction, is located in Israel and is intended for residential purposes by its nature or according to its planning scheme.
Will the property I bought from a Kablan (developer) be considered a residential apartment?
An apartment purchased from a developer and not yet completed is not considered a residential apartment. When construction is completed, it will become a residential apartment.
If I only own a percentage of an apartment, is this percentage taken into account in the total calculation of my properties?
Yes, a percentage in the ownership rights of an apartment will also be taken into account in the total property calculation.
The amount of the tax will be determined according to the portion in the owner's possession.
Example Let's say you have 2 apartments at 100%, and own 50% in a third apartment. Let's also assume that the value of the third apartment is set at 1,500,000 Shekels.
The amount of tax you'll have to pay is : 1,500,000 * 1% * 50% = 7,500 shekels per year.
I'm a shareholder who owns an apartment in my company's name. Will the apartment be considered personal property or company property?
If there are fewer than 6 shareholders in the company in question, the apartment will be taken into account in calculating the total amount of the shareholders' apartments, in proportion to their number of shares in the company.
Example: You are a 30% shareholder in a company that owns a residential apartment. When calculating your total number of apartments, the apartment in your company's name will be considered as belonging to 30%.
How is the tax on a third apartment in Israel calculated?
First of all, you need to decide which two apartments are not taxable. The tax applies from the third apartment upwards, so you need to decide which apartments will not be taxed.
For the remaining apartments, the tax will be calculated as follows:
For each apartment, the "apartment value" is calculated. This value is the result of a formula established by law, which takes into account
house size, location, socio-economic index and peripheral index published by the Central Bureau of Statistics and Survey in Israel.
On this value, the tax amount will be 1%, capped at 18,000 shekels per apartment for 2017.
As mentioned above, if you have a percentage of the rights to the apartment, the amount of the tax will therefore be multiplied by your percentage of ownership.
- A person owns three apartments at 100%. The value of the taxable apartment is 1,500,000 shekels. The amount of tax to be paid will therefore be 1,500,000 * 1% = 15,000 shekels.
- A person owns three apartments at 100%. The value of the taxable apartment is 2,000,000 shekels. The amount of tax to be paid should therefore have been 2,000,000 * 1% = 20,000 shekels, but as this amount is capped at 18,000 shekels, the amount of tax will therefore be 18,000 shekels.
Will I have to pay if I sell/buy an apartment during the year?
If an apartment is bought or sold during the tax year through the taxpayer, the tax rate will be prorated for the period of ownership in the property during the tax year.
Are there any tax exemptions?
The law states that if the total value of all your apartments, minus one apartment in which you are supposed to live, does not exceed 1,150,000 Nis , you will be exempt from the tax. You are still required to make a declaration.
If this amount is between 1,150,000 shekels and 1,400,000 shekels, it will be subject to partial taxation.
In other words, if when we take into account the total value of your apartments, removing the value of the apartment in which you live, and :
- If the value does not exceed 1,150,000 shekels, you are tax-exempt.
- If this value is between 1,150,000 and 1,400,000 shekels, you will benefit from partial taxation.
- If the value exceeds 1,400,000 shekels, you will be subject to the full tax, in accordance with the calculation described above.
Are there any advantages to selling an apartment in 2017?
The law states that anyone selling one of their apartments between 01.01.2017 and 31.09.2017 will be entitled to the following benefits:
- Exemption from tax on the third apartment during the part of 2017 when the apartment was in the owner's possession.
- Tax credit of up to 85,000 shekels. In the event that the sale of this property is subject to real estate capital gains tax - מס שבח.
To obtain these benefits, don't hesitate to contact us.
Is there a declaration to be made?
The law orders that in the 2017 tax year, the owner of several apartments must make a declaration of all the apartments in his possession.
The 2017 declaration must be submitted by 06/30/2017.
From 2018, the tax authorities will send messages automatically, based on your 2017 return. It will therefore not be necessary to submit another return in 2018.
Failure to submit the aforementioned declaration will result in additional fines and penalties.
Do I have to declare a change in the total percentage of my apartments?
Any change in the number of apartments - resulting from the sale or purchase of an apartment during the year - must be declared within 30 days of the change.
How is this tax paid?
The tax must be paid in two instalments, the first by 06/30 and the second by 12/31 of the fiscal year.
Will this tax be recognized as an expense to reduce my income from property?
The tax on the third apartment in Israel will not be recognized as an expense.
Your questions - Our advice :
- How do I make the declaration? Can I do it alone?
- Can I appeal if I disagree with the value of the apartment as estimated by the tax authorities?
- If I don't declare, what are the risks?
- How will the taxman know I have several houses?
- I have several houses that I rent out, but I've never declared this income. If I declare my 3rd house now, won't I wake up the taxman about the previous years?
As the amount of the tax can reach significant sums, we recommend that you seek advice from our firm. A consultation may prove beneficial, and will enable you to comply with this new tax obligation. Call on tax specialists in Israel.[/vc_column_text][/vc_column][/vc_row]