Major Update to Purchase Tax for Olim: New Lower Purchase Tax Rates and Upcoming VAT Increase in 2025
In a significant policy shift, the Israeli government has announced important changes to the purchase tax (Mas Rechisha) for new immigrants (Olim), including a notable reduction in the tax rate. These updates, which came into effect on August 15, 2024, aim to make the benefit more accessible and appealing, reflecting the government’s effort to address the underutilization of the previous discount and to better support new Olim in their home-buying journey.
Key Changes to the Purchase Tax Discount:
Scope of Eligibility: Previously, Olim could apply the purchase tax discount to a new property purchased despite owning other properties (whether bought or inherited). The new regulations, however, restrict the discount to single residency only. While at the same time, significantly lowering the rate of the purchase tax. This change ensures that the benefit is focused on helping Olim secure their home in Israel for personal use rather than helping the higher end purchases by Olim or investors owning multiple properties (only 66 people have used the previous Aliyah rights in the whole of 2023, most Olim have just used the Single Residency discount which was more beneficial for them).
Revised Tax Rates: The updated tax structure significantly reduces the tax rates for those eligible, and capping the use of the Aliyah benefits for purchase up to 20,183,565 NIS (more expensive purchases will not be able to use this right):
Aliyah Rights Flexibility:
While in the past, Aliyah rights could only be used for purchasing a home for the residence of the Oleh, these rights can now also be applied to an investment property, expanding the utility of this benefit.
Olim Chadashim who made Aliyah before the new rates took effect (i.e., August 15, 2024) have the option to choose whether to use the Aliyah rights under the old regulations or the new regulations, allowing them to carry on with their plans as they might have relied on the tax as it was before the change.
Purchase Timing and Rights Retention:
Aliyah rights can be used for purchases where the agreement was signed up to a year before making Aliyah (they might have to pay the full purchase tax initially but get the difference back if they made Aliyah in time) or within seven years after making Aliyah.
If the purchase involves new construction, the time during which the apartment is under construction does not count toward this one-year period, provided the Oleh made Aliyah no later than three years from the agreement signing or when the letter of occupancy is received (the earlier of the two). Important to note (and commonly mistaken) that whether the apartment is ready by that date or not has no relevance on the time the new Oleh must male Aliyah by.
If the Oleh served in the army during those seven years, the time spent in service is excluded from the seven-year period.
Special Provisions for Previous Contracts:
Olim who purchased their apartment before the new rates were introduced, meaning the purchase agreement was signed before August 15, 2024, are not eligible for the new rates.
The old tax rates remain applicable for those purchasing a business, including an agricultural farm, under the Aliyah rights.
Regretfully, people who have purchased a property already, and were planning on making Aliyah according to the timeline as it was set in the law before the change, will not be able to benefit from either one for the Aliyah benefits.
Effective Date and Application:
The new tax rates apply to contracts signed after August 15, 2024. However, these benefits do not retroactively apply to payments on contracts signed before this date.
Upcoming VAT Increase:
In addition to the purchase tax changes, the government has also announced an increase in VAT from 17% to 18%, effective January 1, 2025. This change will affect buyers, particularly those purchasing in new construction projects. If you buy after January 1st, 2025, the new VAT rate will be included in the purchase price. However, if you bought a property prior to the end of 2024, any payment made before the end of 2024 will be according to the old VAT rate (17%), and any payments made starting from January 2025 will have another 1% of VAT added to those payments. As this increase will not be that significant, it might not make sense to push up payments, but if your payment is due around the beginning of 2025, it may be beneficial to advance your payments to avoid this additional cost.
As a real estate attorney, I urge all new immigrants to take advantage of these updated tax benefits. If you are considering purchasing a property in Israel, now is the time to act, check your status relating to your potential tax benefits, and plan ahead to minimize your tax exposure. Additionally, with the upcoming VAT increase, planning your payments before the end of 2024 could save you some additional costs.
For personalized advice on how to navigate these changes smoothly and with the best financial outcome, please contact me to discuss your specific situation and ensure you make the most of these new regulations.
For further assistance or to schedule a consultation, use this link to set up a time: calendly.com/yair-givati or contact my office to coordinate: office@givatilaw.co.il. Let us help you secure your new home and maximize your benefits under the revised purchase tax laws.
