An Israeli court last week upheld the right of an oleh (new immigrant) to a purchase-tax refund on a new home in Israel after the builder was late (Bonny Eisler vs Jerusalem Real Estate Tax Director).
What are the purchase-tax rates?
When someone buys real estate in Israel, they may have to pay purchase tax. In 2025, there are several different purchase-tax scales. Generally, the purchase-tax rates are 8%-10% with a few exceptions.
First exception: An Israeli resident purchasing their only home may pay no purchase tax on the first NIS 1,978,745. After that, the rates are 3.5%-10%, but the 10% rate only kicks in at NIS 20,183,565.
Second exception: An oleh may enjoy purchase-tax rates of 0.5% on the first NIS 1,988,090 and 5% above that if the purchase was in the period from one year before aliyah to Israel until seven years after aliyah. The oleh can benefit from these rates once on both: (1) a home, and (2) business premises.
Other detailed rules are also prescribed.
The second exception should apply even if the immigrant already has a home, unlike the first exception.
Therefore, olim or their property lawyers should run the numbers and choose the best option (see below).
The main facts in this court case
In September 2017, the taxpayer, then a US resident, bought an unbuilt apartment in Beit Shemesh based on the building plans. It apparently cost NIS 1,030,000. That same month, her lawyer filed a purchase-tax self-assessment, and she paid 8% purchase tax as a foreign resident, or NIS 82,400.
In December 2020, she made aliyah to Israel to join her family. In January 2022, the builder finally finished building the apartment and handed it over to her. The builder warned of construction delays several times due to the COVID pandemic.
The taxpayer’s lawyer twice requested a refund of the purchase tax, because she had become an Israeli resident immigrant and the builder was late.
In June 2021, the Real Estate Tax Office – part of the Israel Tax Authority (ITA) – turned down the first request, because three years and three months had elapsed, and she was not then an Israeli resident.
The ITA turned down the second request in November 2021, “because there are no new facts.”
The ITA argued that by law, it could not extend a substantive deadline, and that a three-year time limit applied to the second option under a 1977 tax circular.
That was all very irritating for a retired oleh.
The judgment
The Jerusalem District Court, sitting as the real-estate tax tribunal, ruled heavily in the taxpayer’s favor, and the reasons are worth noting. In a word: timing.
The court invoked a precedent in the Supreme Court case of Melchior vs Tel Aviv Real Estate Tax Director in 2022. That ruling said the date of handover by the builder becomes the purchase date of a new property – when taxing the sale or the purchase of a property.
The law refers to the agreed-upon handover date or the actual date of handover, if later, for reasons beyond the control of the taxpayer.
That was enough in this case, but the court also pointed out that the ITA could extend deadlines if it sees sufficient reason. The ITA had acknowledged a builder’s delay is sufficient reason.
Moreover, the tax circular’s three-year limit was suspended in the period from March 1, 2020, to June 30, 2022, due to temporary legislation issued to deal with the COVID pandemic. Furthermore, the court said, no deadline applies to construction delays beyond the taxpayer’s control.
In short, the taxpayer was awarded a purchase-tax refund plus costs. Construction and COVID had stopped the clock.
Comments
The ITA officials in this case were clearly uninformed and were criticized by the court.
How do you prove intent to make aliyah? Selling a foreign home and dealing with the Jewish Agency and Nefesh B’Nefesh all help.
If you are buying an unbuilt property, make sure your lawyer points this out in the initial purchase-tax filing. According to the Supreme Court, the difficulties in the Melchior case would not have occurred had the unbuilt property rules been applied sooner.
Not paying purchase tax on unbuilt property is easier than claiming it back.
As always, consult experienced legal and tax advisers in each country at an early stage in specific cases.
leon@hcat.co
The writer is a certified public accountant at Harris Consulting & Tax Ltd.