Israel Tax Authority Issues Executive Order Allowing Double Purchase Tax Benefits for Certain Residential Buyers

The Israel Tax Authority (ITA) recently published a directive updating the rules for persons classified as disabled, blind, or injured in Israel’s various wars, and for families of fallen soldiers. The directive also addresses whether a disabled person who receives a residential apartment as a gift from a relative may claim two purchase tax benefits on the same transaction.

A person classified as disabled, blind, or injured in Israel’s various wars, or a family member of a fallen soldier, who purchases a residential apartment for their own residence is entitled to a reduced purchase tax rate of 0.5% of the total purchase value. If this is the buyer’s sole apartment and its value does not exceed ILS 2,500,000, the benefit is greater: the buyer pays no purchase tax on the first ILS 1,978,745 (as of 2024) and only 0.5% on the balance.

Even before the directive was issued, the ITA applied particular rules regarding the purchase tax benefit under Regulation 11, but those rules had not been consolidated or published in an orderly manner. As a result, people who did not specialize in the field were not always aware of them.

The ITA recently issued Executive Order 3/2024, which contains guidelines for implementing Regulation 11. Some provisions clarify the ITA’s existing official position, while others set out its position on particular issues for the first time.

The Executive Order clarifies, among other things, the guidelines for granting a purchase tax benefit under Regulation 11 to parents who purchase an apartment for a disabled minor or a disabled adult child who is legally incompetent. It also specifies the steps required to receive the benefit. The Executive Order addresses the categories included in the definition of “disabled” in the Purchase Tax Regulations and includes provisions intended to assist taxpayers who are uncertain whether the definition applies to them.

A person who receives a residential apartment as a gift from a relative is entitled to a purchase tax benefit under which they pay one-third of the applicable regular purchase tax. For purchase tax purposes, “relative” is defined as a spouse, parent, sibling, offspring, or an offspring’s spouse.

Under the Executive Order, if the recipient of the gift is also “disabled” as defined in the Purchase Tax Regulations, they may claim both the Regulation 11 benefit described above and the benefit for receiving a residential apartment as a gift from a relative.

The recipient is therefore entitled to both benefits: the reduced purchase tax rate for a disabled person and the reduction to one-third of the applicable tax for a gift from a relative.

Courts have considered several cases in which taxpayers sought, unsuccessfully, to apply two purchase tax benefits to a single transaction.

In the 2005 Geva case, a couple jointly purchased a residential apartment. The woman was a new immigrant and sought to use the special purchase tax benefit for new immigrants. At the time of the transaction considered by the court, the applicable rates were 0.5% on the first ILS 1,169,845 and 4.5% on the balance.

The husband was also entitled to a purchase tax benefit under the Housing Loan Law by virtue of his security service. At the time of the transaction, a provision that is no longer in effect entitled him to rates of 0% on the first ILS 499,385, 3.5% on the portion up to ILS 775,075, and 4.5% on the balance.

The couple sought to combine the benefits to obtain an optimal tax calculation: 0% on the first ILS 499,385 under the husband’s benefit, 0.5% on the portion up to ILS 1,169,845 under the wife’s benefit, and 4.5% on the balance. The court denied their application, ruling that an expanded combined purchase tax benefit was not allowed without an express statutory provision.

The court reasoned that combining the most favorable parts of each benefit would exceed the boundaries set by the legislature for each provision and create a benefit the legislature had not specifically prescribed.

The Supreme Court considered another application to combine purchase tax benefits in the 2014 Gur case. That ruling was handed down under the previous version of Regulation 11. At the time, the current benefit for a disabled person purchasing a sole residential apartment valued at up to ILS 2,500,000 did not exist, and the benefit for a disabled person was a rate of 0.5% on the apartment’s entire value.

In Gur, a disabled person purchasing a residential apartment as his sole apartment sought to combine the 0.5% rate for disabled persons with the benefit for buyers of a sole apartment. He sought a bracketed calculation similar to the current version: 0% on the first tax bracket for a sole apartment and 0.5% on the balance.

The Supreme Court ruled that although the language of the two provisions did not rule out combining them, it did not indicate a clear intention to allow it either. The court rejected the application, ruling that it could not interpret the Purchase Tax Regulations broadly in a way that was not clearly grounded in their wording or purpose.