By Mirit Reif, Adv.
On December 29, 2016, the Economic Arrangement Bill (Legislative Amendments to Implement the 2017-2018 State Budget) 5776-2016 was published by the Israeli government. Various tax amendments were made including the final new Third Apartment Tax Bill (“the Bill”).
In general, when one derives rental income from one or more apartments, one is exposed to potential tax due from that income depending if the total monthly rental income exceeds a certain amount, currently NIS 5,030 for tax year 2016. This tax is due regardless of how many apartments one owns.
Starting January 1, 2017, a 1% tax will be imposed on those owners who own 3 apartments and more, at a maximum amount of NIS 18,000 tax per year, per apartment. The tax will be levied on the cheapest valued apartments. This measure is intended to encourage people that own more than two apartments to sell them in order to increase the availability of apartments for sale and thus lowering the prices and enabling more families the opportunity to purchase them. The tax will apply only if one owns at least 249% of all the apartments.
Two apartments or more that have been turned into one apartment will be considered one apartment for this Bill. An apartment that was lawfully split into a few units will also be considered as one apartment. An apartment that was inherited and was not rented out for the first year upon inheritance will not be considered as an additional apartment during the first year for the person that inherited the apartment.
In addition, one will be exempt from tax if the aggregated market value of all the additional apartments, (apart from the first and most expensive one), does not exceed NIS 1.15 million. If the aggregated value is between NIS 1.15 million and 1.4 million there will be a reduced tax calculation. Once the aggregated value of the additional apartments exceeds NIS 1.4 million, the full tax rate will be imposed.
In the event that one sells an apartment up until October 1, 2017, one will receive a partial exemption of tax on one apartment of his choice, which does not necessarily have to be the apartment one sold. In addition, an allowance up to NIS 75,000 will be given, upon certain conditions. The allowance will not be given if the sale is to a family member such as siblings. In the event that the proceeds of the sale are invested in certain Israeli provident funds, subject to certain terms and conditions, an exemption of capital gains tax will be granted upon withdrawal of the funds.
There are still many open questions regarding this Bill, for example regarding the implementation of the above mentioned allowance. Clarifications to this Bill will be given over time and published on our site once they are announced and made public by the Israeli Tax Authorities.
The content of this article is intended to provide a general guide to the subject matter and is not a substitute for legal consultation. Specific legal advice should be sought in accordance with the circumstances.