Gifts

Gift Transactions: Tax Deferral

Section 62 of the Israeli Real Estate Taxation Law deals with gifts to relatives. The section states that the a gift of a real estate right from an individual to his relative, as defined by law, will be exempt from capital gains tax (the tax imposed on the profit accrued to the seller).

1/3 Purchase Tax

Upon recieving a gift from a relative as determined by the Israeli law, the purchase tax will be one-third of the usual purchase tax. 

This means that if the gift is a residential apartment and the recipient of the gift does not own a residential apartment (or owns up to one-third of an apartment or half of an inherited apartment), they will be taxed according to the single-apartment steps. 

If they already own a residential apartment, they will pay 8% (as of 2023) purchase tax on the estimated value of the apartment transferred as a gift. For real estate interests other than residential apartments, the recipient of the gift will pay 2% (which is one-third of 6%) (as of 2023) purchase tax on the value of the property.

Exemption for Spouses in Apartments 

However, an exemption from purchase tax will be granted on the gift of a real estate right in a residential apartment  to a spouse (including a common law spouse) who lives with them in the same residential apartment. This exemption applies only to the apartment that the spouses live in together, and not to a joint business, for example.

Gift Transactions: Transfer Between Siblings

It is important to note that a real estate gift between siblings is considered a “gift transaction” for tax purposes only if the property was received from the parents or the parents’ parents as a gift or by inheritance. If the property was purchased with funds that were at least 95% gifted by the parents or grandparents, the Israeli Tax Authority has recently ruled (Taxation Decision No. 6642/21) that the transfer will be considered a gift transaction for tax purposes.

The burden of proof that the apartment transferred as a gift between siblings was purchased with funds received as a gift from the parents or from the parents’ parents rests with the applicant.