Estate Planning & Tax
Wills and Tax in Israel
Planning to Minimise Your Heirs' Tax Burden
Israel has no inheritance tax — but capital gains tax, purchase tax, and betterment levy can all affect what your heirs actually receive. Adv. Liron Elmaliach advises on structuring your will to minimise unnecessary tax exposure.
Tax on Inherited Property Under a Will
Israel abolished inheritance tax in 1981, and there is no gift tax on assets transferred at death. Receiving an inheritance through a will is not itself a taxable event. However, the absence of inheritance tax does not mean inherited assets are free of all tax obligations — several taxes can apply at the point of transfer or when heirs later deal with the inherited asset.
Capital gains tax (mas shevach): When an heir sells an apartment or other asset inherited through a will, the taxable gain is calculated from the original acquisition cost paid by the deceased — not from the date of inheritance. A property bought by the testator in the 1980s or 1990s may carry a very large latent capital gain, even if the heir did nothing to increase its value.
Purchase tax on inherited property: The Real Estate Taxation Law grants a reduced purchase tax rate for property transferred by inheritance — but it is a reduction, not a full exemption. The exact rate depends on the heir's overall property portfolio. Heirs who already own other apartments may face a higher tax bracket.
Betterment levy (heitel hashbacha): Where inherited land has benefited from planning approvals or rezoning that increased its value, the municipal betterment levy may apply when the heir sells or builds. This is separate from capital gains tax and calculated differently, based on the increase in value attributable to the planning change.
Tax Planning Through Your Will
A well-drafted will can significantly reduce the tax burden your heirs face — not by evading tax, but by taking advantage of legitimate exemptions and structuring bequests to match each heir's circumstances. This requires a joint analysis of your assets and your heirs' existing property and tax positions.
Primary residence bequest: Leaving your primary residence to a child who will live in it — and who does not own another apartment — can enable that child to sell the property later under the primary residence capital gains exemption. By contrast, leaving the same apartment to a child who already owns property could trigger a large tax liability. Matching the right asset to the right heir matters.
Phased bequests: Rather than transferring everything at once, a will can direct assets in stages — for example, giving a surviving spouse a usufruct right (zchut shlila) during their lifetime, with ownership passing to children afterwards. This can defer or reduce capital gains exposure.
Charitable bequests: Bequests to recognised public institutions are exempt from capital gains tax and are deductible under certain circumstances. Directing high-gain assets — such as commercial property or shares with a low cost basis — to charity, while leaving primary-residence-eligible property to family members, can substantially reduce the overall tax burden.
Trust for minors: Where heirs include minor children, a testamentary trust can hold assets until the children reach a specified age. Properly structured, the trust can manage tax obligations during the holding period and defer realisation events.
Foreign assets: Assets held outside Israel — property, bank accounts, or securities abroad — must be addressed in both the Israeli will and in the context of the relevant foreign jurisdiction. Israeli tax residents are taxed on worldwide income and gains, and the interaction between Israeli capital gains tax and foreign taxes requires careful coordination to avoid double taxation.
Frequently Asked Questions — Wills and Tax in Israel
Answers to the most common questions about the tax implications of wills and inheritance
Plan Your Will to Protect Your Heirs
Wills and Tax Planning — Free Initial Consultation
Adv. Liron Elmaliach — Jerusalem, practising since 2014