If you’re planning to buy property in Israel, there’s an important tax change you need to be aware of. Normally, purchase tax brackets are adjusted each year on January 15 – based on inflation of the previous year. But for the next three years, the government has decided to freeze these updates, meaning buyers may hit higher tax brackets sooner than they would have had to if the rates would have been adjusted.
How Purchase Tax Works
When buying property in Israel, you pay a tax based on the purchase price, with different brackets depending on your own personal status:
- General rates – 8% on the first portion, 10% on anything above a set threshold.
- Single residency rates – Starting at 0% and gradually increasing to 3.5%, 5%, 8%, and 10%.
- Olim (new immigrant) rates – Beginning at 0%, then rising to 0.5% and 8%.
Each year, these thresholds are updated based on inflation of the previous year, ensuring that as the inflation goes up and the value of the money goes down, buyers aren’t unfairly pushed into higher tax brackets. The updates take effect on January 15 of every year and apply until the following year.
How it gets implemented and sample of what’s changing
In 2024 the 8% tax rate applied to any properties up to 6,050,000 NIS. If the inflation changes would have continued into 2025, the bracket would have extended to properties up to 6,279,900 ILS due to inflation adjustments. But since the government is freezing the update, the threshold for the 8% tax bracket remains at 6,050,000 ILS—the same as the previous year. This means that any portion of the property price above 6,050,000 ILS will now be taxed at 10%, even though inflation has effectively decreased the value of your money.
Why Is the Government Doing This?
Israel is facing a budget deficit, mainly due to the war and increased defense spending. Freezing the tax brackets generates more revenue by pushing buyers into the higher tax rate sooner. Instead of adjusting tax brackets to reflect inflation, the government is using this as a way to increase tax collection without raising rates outright.
How This Affects Buyers
- Higher taxes on purchases – Buyers will reach the higher tax brackets rates sooner than they would have under normal adjustments.
- First-time buyers and Olim are more affected – If you qualify for discounts, you will feel it more as the lower purchase tax brackets will not increase in value.
- The later you buy – the more tax you will pay – As the freeze is now set for the next 3 years (2025-2027), the prices will not be adjusted during that period, so each year you will have to pay more than you would have had to pay if they were they adjusted. For example, if the inflation rate stays the same, the extra tax you will pay have to pay will double in 2026 compared to 2025, and so on and so forth.
If you’re considering purchasing property in Israel, it’s essential to factor in these (potential additional) costs and plan accordingly.
For tailored advice, speak with a real estate lawyer or tax professional to understand how this affects your specific situation.
