Israel's real estate market faces significant regulatory changes expected to affect buyers, sellers and landlords. Several amendments to real estate taxation are expected to take effect in 2025, including through the Economic Arrangements Law. This article reviews the main changes, their effects and the planning they require.
1. Freezing purchase tax bracket adjustments
Until now, purchase tax brackets have been adjusted annually in line with the Consumer Price Index. This allowed buyers to accommodate price increases without moving into a higher tax bracket. From 2025, the brackets will be frozen for three years, 2025-2027.
Buyers may therefore pay more tax as apartment prices rise above the existing thresholds.
In 2024, the first bracket exempts apartments worth up to NIS 1,978,745 from purchase tax. If the index rises by 3% in 2025, that threshold would otherwise increase to NIS 2,038,107. The freeze leaves it at NIS 1,978,745. For an apartment costing NIS 2,030,000 in 2025:
- Without the change, the adjusted bracket would exempt the buyer of a sole apartment.
- With the freeze, the buyer pays 3.5% on the difference between NIS 2,030,000 and NIS 1,978,745, an additional NIS 1,794.
Although the amount in this example is small, the other brackets will also remain unchanged. The additional cost increases with the apartment's price.
2. Expanding the surtax
The 3% surtax on high income is expected to rise to 5% and also apply to gains on sales of real estate that do not qualify for an exemption from land appreciation tax.
Owners selling apartments that are not their sole apartment, or luxury properties, will face a higher effective rate. For example, on a property sold with a gain of NIS 1,000,000, the total rate rises from 25% to 30%, including the surtax, adding NIS 50,000 in tax.
3. Freezing the exemption threshold for residential rental income
The exemption threshold, normally adjusted with the Consumer Price Index, will be frozen in 2025 and remain unchanged for three years. Landlords may pay tax on part of their rental income, particularly where rents rise substantially.
In 2024, the threshold is NIS 5,654 a month. With an expected 3% index increase in 2025, it would otherwise rise to NIS 5,823. The freeze keeps it at NIS 5,654. A landlord charging NIS 5,800 a month in 2025 would therefore owe tax, whereas an adjusted threshold would exempt that rental income.
4. Phasing out the preferential linear calculation
Sellers of residential apartments purchased before 1 January 2014 currently benefit from reduced land appreciation tax through the preferential linear calculation. From 2025, this benefit will be phased out. The rate applicable to the period before 2014 will rise by 5% each year until it reaches the ordinary rate in 2030.
Sellers will face a higher tax burden, particularly on transactions postponed beyond 2025. For example, an apartment purchased in 2010 and sold in 2026 will incur more land appreciation tax than if it had been sold earlier.
Implications and recommendations
The regulation planned for 2025 requires advance preparation. Owners, buyers and landlords should consider completing significant transactions before the changes take effect and consult tax and real estate professionals about a plan suited to their circumstances.
- Buyers: examine the purchase date and aim to complete the transaction in the lowest available tax bracket.
- Sellers: consider selling before 2025 if you qualify for the preferential linear calculation.
- Landlords: plan your taxes carefully to make full use of the exemption threshold.
The expected changes reflect a greater tax burden on property owners and increased state revenue. Planning, professional knowledge and suitable tax strategies can reduce their adverse effects on the market and your property.
For questions or advice, contact our office. Advocate Haim Shamli specialises in real estate transactions, including effective tax planning. You can also browse our articles.
The information on this page is general information and is not legal advice.