Lior Pick, Attorney-at-Law, CPA

On February 24th, 2011, the Lands Taxation Law (Betterment and Purchases) aimed at increasing the supply of residential apartments – interim provision, 5711 – 2011 was published (hereinafter – “the interim provision”).

The interim provision is aimed at increasing the supply of apartments in Israel and halting apartment price hikes that have been taking place over recent years.

The interim provision provides a time-limited window of opportunities that enables a substantial alleviation of the taxation burden when selling a residential apartment that complies with the criteria.

Following is a summarized review of the major amendments.

Betterment Tax Relief

1. An Exemption on the Sale of an Entitled Residential Apartment

The temporary provision grants any seller additional exemptions from Betterment Tax on the sale of an “entitled” residential apartment during the period January 1st, 2011-December 12th, 2012 (hereinafter – “the determining period”), subject to complying with the following terms and conditions:

The Principal Terms and Conditions:

1. The individual must sell all the rights in the land that he has in the entitled residential apartment, i.e., an apartment that was used primarily for residential purposes during the four years preceding its sale or during 80% of the period for which Betterment Tax is calculated.
2. The exemption ceiling for the sale of an entitled residential apartment separately is up to a sum of NIS 2.2 million (hereinafter – “the exemption ceiling”).
3. In the sale of an entitled residential apartment with additional building rights – the value of the sale Exempt from tax – the value of the apartment without the additional building rights.

The exemption in the interim provision shall not apply in a case in which the seller received the residential apartment without consideration (a gift) during the period November 1st, 2010-December 12th, 2012.

During the determining period, 2 residential apartments can be sold exempt from tax, without prejudicing the exemption to which an individual is entitled pursuant to Section 49b(1) Exemption from Betterment Tax on the Sale of an Entitled Residential Apartment Once in Four Years, subject to additional terms and conditions (hereinafter -“the 4-year exemption”).

In view of the aforementioned, we believe that, during the determining period, 3 entitled Residential apartments can be sold exempt from Betterment Tax (2 apartments pursuant to the interim provisions and 1 pursuant to the “4-year” exemption).

We reiterate that, after the determining period, the sale of an entitled residential apartment sold with an exemption pursuant to the interim provision, shall be considered as an apartment sold pursuant to the “4-year” exemption, i.e., a waiting period of an additional 4 years shall be required before selling an additional apartment exempt from Betterment Tax.

In the article, in brackets, it is stated that there is an intention to annul the 4- year exemption for owners of apartments in Israel that are not units.

2. A Reduction of the Betterment Tax Rate for Owners of Land Intended for the Construction of Residential Apartments

An individual (including a family company), who owns land intended for the construction of residential apartments, which was acquired during the period, April 1st, 1961-November 6th, 2001, shall be entitled to sell it at a reduced tax rate of only 20% during a limited time period between November 15th 2010- December 31st, 2011, subject to the following accumulated terms and conditions:

The Principal Terms and Conditions:

1. The sale is not of the rights in the land for which a program exists pursuant to the Planning and Building Law, which permits the construction of at least 8 apartments intended for residential use.
2. No later than from the termination of 36 months from the date of the sale, the construction of at least 80% of the apartments intended for residential use, which are permitted for construction pursuant to the building program on the land was completed, commencing from the date of completing the construction, or of 8 apartment units intended for residential use, whichever is the higher amongst them. Regarding this section, completion of construction shall be one of the following – A permit to supply electricity (Form 4), waterr or connection of a telephone to the building pursuant to Section 265 of the Planning and Building Law.

The aforementioned exemption provisions shall not apply to a sale completed without consideration or a sale between relatives, a sale for which there is a tax exemption (partial/full) or a reduced tax rate pursuant to the Land Tax Law or pursuant to the Income Tax Order, or to sales pursuant to the provisions in Section 5 (b) (a transfer as business stock).

On the other hand, as a part of the incentive in Israel to stop presidential price hikes, following are a number of amendments to purchases tax in Israel:

Purchases Tax

1. A Hike in the Purchases Tax Rates on Apartments for Investment

An individual who acquires a residential apartment, which is not his only apartment during the period, February 21st, 2011-December 31st, 2012 shall pay the following increased purchases tax rates:

Up to NIS 1 million – 5%

NIS 1 Million to NIS 3 million – 6%

Over NIS 3 million – 7%

2. Purchases Tax Reduction for an Individual who Purchases a Single Residential Apartment

An individual who acquires a residential apartment, which is his only apartment during the period, February 21st, 2011-December 31st, 2012 shall pay the following reduced purchases tax rates:

Up to NIS 1,350,000 – exempt from tax

From NIS 1,350,000 to 1,601,210 – 3.5%

Over 1,601,210 – 5%

For further details and/or any queries and/or explanations contact Attorneys at Law Shiri Weiss or Lital Ross at our law offices.