Luxury Apartments in Israel: What Is the Maximum Exemption from Land Appreciation Tax?

Tax Appeals Committee recently handed down a new ruling in a taxation of luxury apartments case.

The Appeals Committee deliberated the question of the entitlement to an exemption from land appreciation tax during the sale of a luxury apartment by several sellers. The sellers in the case claimed they were entitled to the full sum of the maximum exemption prescribed by law for a single apartment. However, the Israel Tax Authority claimed the maximum exemption applies to the value of the sale of the entire apartment and therefore each of the sellers is entitled to a pro rata portion of the maximum exemption according to each seller’s share of the apartment.

Pursuant to the law, the owner of a single apartment is entitled to an exemption from land appreciation tax at the time of its sale at the height of the maximum exemption prescribed by law. This is currently about ILS 4.6 million.

In the case at hand, considering the value of the apartment, which was sold for more than ILS 10 million, and considering the fact that the sellers, who own the rights in the apartment, are separate family units (a family unit consists of parents and children under 18 years of age), each of the two rights-holders in the apartment applied for an exemption at the full maximum sum.

The Israel Tax Authority held to grant the exemption in respect of the entire apartment and not to each individual seller. The Appeals Committee ruled that, since the sellers are not part of the same family unit, and the requested exemption is for the sale of a single apartment, then the exemption will be granted to each seller separately and not in respect of the entire apartment.

It is reasonably likely the Israel Tax Authority will appeal the ruling.

We note the Mira Ariel ruling  from 2017, which adjudicated a slightly different situation. In that case, an inherited apartment was sold and, during the sale, an application was filed for an exemption in respect of the sale of an inherited apartment (pursuant to section 49B(5)). The court ruled that if the sellers request an exemption in respect of the sale of an inherited apartment, the exemption applies to the testator himself. Therefore, if there are several heirs, the exemption cannot be granted to each heir separately. Within this context, a member of the Appeals Committee, wrote that “the wording of section 49B(5) of the Real Estate Taxation Law intimates a maximum for the testator, which should have been relayed as a maximum to the heirs, since they are subrogating for the testator.”