Liberman targets foreign residents in real estate tax reforms

Israel’s Minister of Finance Avigdor Liberman has submitted for approval to the Inter-ministerial Committee on Legislative matters, a draft amendment to the Real Estate Taxation Law. The aim of the reforms is to cool demand in the housing market and increase supply.

Liberman’s reform targets foreign residents who will be required to pay appreciation tax when selling an apartment – a 25% tax on the difference between the buying price and selling price. Foreign residents will also lose the tax exemption on the rental income on apartments that they lease. The thinking behind the move is that if there is less incentive to buy an apartment in Israel, as an investment, then more homes will be freed up for local buyers. According to the Israel Tax Authority, foreign residents own 83,000 homes in Israel, of which about 40,000 are in Jerusalem and Tel Aviv.

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Another proposed change is to shorten the overlap period in which homebuyers are allowed to own two homes, from 24 months to 12 months. At present a homebuyer who buys a second home, can wait up until 24 months before selling their first home, and still be considered the owner of one home, when it comes to paying the various taxes. Between 2016 and July 2021, this period was 18 months but was extended to 24 months last year. Now Liberman is seeking to shorten it to 12 months.

Liberman is also seeking to update the purchase tax brackets for buying a property, so that homebuyers of cheaper apartments will pay less and buyers of more expensive apartments will pay more tax.

Under Liberman’s reform, homebuyers will be exempt of purchase tax on apartments up to NIS 1.93 million, instead of the current NIS 1.8 million. Purchase tax will be 3.5% for apartments costing between NIS 1.93 million and NIS 2.33 million (currently NIS 1.8 million and NIS 2.14 million). Purchase tax will rise to 5% from NIS 2.33 million to NIS 3.1 million (currently NIS 2.14 million to NIS 5.15 million) and to 8% from NIS 3.1 million to NIS 5.3 million. Purchase tax will rose to 10% from NIS 5.3 million, instead of from NIS 18.4 million at present.

Published by Globes, Israel business news – en.globes.co.il – on April 3, 2022.

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