Mas Rechisha: what you need to know about purchase tax
Updated: Mar 12, 2019
Purchase tax is paid when you buy an apartment, not when you sell it at a profit (then this is Mas Shevach - a tax on the capital gain on the apartment's appreciation). At the acquisition stage there is no gain, only investment. So how and why is tax paid at this stage?
The purchase tax is determined by budgetary constraints and with an attempt to influence the housing market and the prices therein, especially on the investment housing market. This tax is not the same for everyone: first home buyers are exempt to a certain cap, while investors who own several apartments have a higher tax rate. This tax plays an important role in the country's attempt to regulate the housing market.
And what happens if the purchaser of an apartment owns an apartment but wants to purchase before he sells?? After all, there are many who first buy an apartment and only then sell - so there is an interim period they hold two apartments. The tax authorities understand and accept this situation, and therefore there is a tax exemption on the purchase of the apartment if within the next year the taxpayer will sell the previous apartment that he owns.
First, purchase tax for investors will rise to 8% for an apartment up to NIS 5.1 million (previously purchase tax was 5% -7%) and 10% for an apartment that cost more than NIS 5.1 million (compared with 8% -10%).
However, the obvious disadvantage in the process of raising purchase tax is the change in the situation of tenants of apartments. Less apartments for investors, meaning fewer apartments for rent. This situation, of course, may lead to an increase in rental prices.
Purchase tax is paid upon the purchase of properties and lands, where there are various easements and steps (steps in tax rates) if the dwelling is a dwelling. But what is a residential apartment?
The explanation for this is found in Section 9 (c) of the Land Taxation Law (Appreciation, Sale and Acquisition). In this section, a "residential apartment" is defined for purchase tax purposes as an apartment used or intended for residential use. As a rule, a dwelling is an apartment whose construction is completed, an apartment that is already suitable for residential use (and is not in the process of construction, even in final processes).
The question arises what happens if you buy an apartment from a contractor and it is not yet completed. Well, in cases of buying an apartment from the contractor, the contractor's obligation must be examined. If you buy an apartment from a contractor and there is no obligation on his part to finish building the apartment, then the apartment is not considered a residential apartment and the rate of purchase tax on it will be like on land (tax at a high rate). If the contractor undertakes to complete the construction of the apartment, the apartment is considered a residential apartment for the purpose of payment of purchase tax, and there are reductions in the rates of taxation (according to the steps - details below).
The purchaser of a residential apartment that will be used entirely or mostly for business purposes and not for residential purposes is not entitled to graduated purchase tax rates applicable to a dwelling. In this case, the purchase tax rate when buying the apartment will be full and higher. In fact, only when buying a residential apartment there is a significant relief purchase tax.
Purchase tax steps
Purchase tax rates for the purchase of a residential apartment by an individual who is his only apartment, rated: up to the first degree, the tax rate is 0%; The second step is already committed at a tax rate of 3.5%; The third step - 5%; The fourth - 8%; And last - 10%. It is important to note that these steps are updated frequently, almost as often as the replacement of governments. Moreover, there are tax planning related to your status vis-a-vis the tax authorities, and although the vast majority pays current taxes according to the steps, there are quite a few exceptions - and you should check your rights.
The tax authority refers to the entire family unit, including spouses and children under the age of 18. This means that if the spouse (including a common-law spouse) has an apartment, the buyer will not be considered as a single apartment .
If you have any purchase tax questions feel free to contact us for more info!