Inheritance Law — Tax Guide
Inheritance and Tax in Israel
No Inheritance Tax, But Watch These
Israel abolished inheritance tax in 1981 — but heirs still face capital gains tax, purchase tax exemptions, betterment levy, and income tax issues. Adv. Liron Elmaliach explains what you need to know before and after receiving an estate.
No Inheritance Tax in Israel — But Other Taxes Apply
Israel abolished inheritance tax in 1981, and successive governments have not reinstated it. This means that heirs do not owe any tax simply because they received assets from an estate. The transfer of ownership at the moment of death is a tax-free event.
However, several other taxes can affect heirs depending on what they inherit and what they choose to do with it:
- Capital gains tax — does not apply at the moment of inheritance, but applies when the heir later sells inherited real estate.
- Purchase tax exemption — inheritance itself is exempt from purchase tax, but subsequent transfers between heirs may attract it at the standard rate.
- Betterment levy (היטל השבחה) — may apply to inherited land if a planning authority approved a scheme that increased the land's value before the heir sells or develops it.
- Income tax — an heir who continues to operate an inherited business, or who receives rental income from an inherited property, must report that income in the normal way.
Understanding which taxes apply — and which exemptions are available — requires careful analysis of each asset. An attorney experienced in inheritance law can map the full picture before the estate is distributed.
Capital Gains Tax on Inherited Property
When an heir sells an inherited apartment, capital gains tax is calculated using the original acquisition date and cost of the deceased — not the heir's date of inheritance. This can produce a significant gain if the property was acquired many years ago at a fraction of its current value.
Primary residence exemption for inherited property: Israeli law (Section 5(g) of the Real Estate Taxation Law) allows an heir to claim the primary residence exemption that the deceased would have been entitled to, provided the heir sells within the statutory time limit and does not own a disqualifying number of other apartments. This exemption can eliminate capital gains tax entirely on the sale of an inherited home.
Foreign residents inheriting Israeli property face additional complexity: the primary residence exemption generally does not apply to non-residents, and the applicable tax rate may differ. Treaty benefits may be available depending on the country of residence. Early professional advice is essential before any transaction.
Planning before and after inheritance: Pre-death planning — such as gifting, restructuring ownership, or establishing trusts — can significantly reduce the tax burden on heirs. After inheritance, timing the sale, choosing the correct exemption, and filing accurately with the Israel Tax Authority are all steps where professional guidance pays for itself many times over.
Frequently Asked Questions — Inheritance and Tax in Israel
Clear answers to the most common questions heirs have about Israeli tax law
Understand Your Tax Position Before Acting
Inheritance and Tax — Free Initial Consultation
Adv. Liron Elmaliach — Inheritance Law, Jerusalem