How a British Family Recovered NIS 386,500 Held Back from an Israeli Sheltered Housing Deposit

Result: NIS 2,362,000 released to a British family, NIS 386,500 above the operator's closing statement · Timeline: 9 months from instruction to payment · Challenge: Operator withheld the deposit after the resident died · Authority: Supervisor of Sheltered Housing (HaMemuneh), Ministry of Welfare and Social Affairs · Financial Impact: NIS 386,500 recovered

Background

A widow from Manchester sold her house in 2018, moved to Israel at 79 to be near a grandson in Ra'anana, and took an apartment in a sheltered housing residence (diur mugan) in Netanya in March 2019. The deposit was NIS 2,350,000. The monthly fee started at NIS 7,400 and was NIS 8,900 by the end. She never made aliyah, never joined an Israeli health fund, and remained resident in the residence for five years and ten months until she died there in January 2025.

Her son and daughter live in London. Neither speaks Hebrew. The residence sent them a two-page closing statement in April 2025 which returned NIS 1,975,500 of the deposit and stated, correctly as far as it went, that nothing would be paid until the family produced an Israeli order proving who the heirs were. The son's reading of the contract was that his mother had put in NIS 2.35 million, had lived there six years, and that something in the region of NIS 375,000 had gone somewhere he could not identify. He was substantially right, and he was also missing a larger figure that the statement did not mention at all.

The Challenge

Israeli sheltered housing is not a tenancy and it is not a purchase. The resident hands a private operator a very large refundable deposit and buys a licence to occupy plus a service package, which means the whole of the family's exposure sits in the contract and in one statute. That statute is the Sheltered Housing Law 5772-2012 (Hok HaDiur HaMugan), and it regulates the operator rather than the resident, so it applies in full to a British woman who was never an Israeli resident and never held Israeli status.

The closing statement had three problems. First, the contract eroded the refundable portion of the deposit by 2% of the deposit for each of the first twelve years of residence, which after six years removed NIS 282,000. That clause is lawful. It is also where most of the money goes in these arrangements, it is negotiable before signature and never afterwards, and it dwarfs anything the statute regulates. Second, the operator had deducted NIS 48,000 for refurbishment of the unit, and Section 28(b) of the Law caps what an operator may retain against a resident's unpaid obligations at NIS 10,000, index-linked. Third, and this was the item the family had no way of spotting, the statement paid back nominal shekels from 2019. Section 28(d) requires the sum returned to carry Consumer Price Index linkage from the date the deposit was paid to the date it is refunded, and between March 2019 and late 2025 that added roughly 17%.

There was a fourth line, for five months of monthly fees running from the death until the operator expected to re-let the apartment. Contracts of this kind routinely charge fees until re-letting. Section 28(a) requires the deposit to be returned no later than the return of the apartment or the end of the agreement, whichever is later, and once the flat has actually been cleared and handed back the operator's entitlement to continue charging for a service it is no longer providing is thin.

In Practice: Under Section 27 of the Sheltered Housing Law 5772-2012 an operator may take deposit money only against one of four securities: a mortgage over the operator's rights in favour of a residents' trustee, a bank or insurer guarantee, transfer of 40% of the deposit to a trustee, or another security approved by the Minister with Knesset approval. Licensing and supervision sit with the Supervisor (HaMemuneh) at the Ministry of Welfare and Social Affairs. On the refund side Section 28(b) caps the operator's retention at NIS 10,000, Section 28(d) requires index linkage from payment to refund, and Section 28(c) requires payment to the heirs within 30 days of them producing the probate documents. On a NIS 2,350,000 deposit the linkage alone was worth more than NIS 350,000.

What We Did

We asked for the security first, before arguing about a shekel. Section 27 requires one of four securities to be in place and the operator has to be able to show which. This one produced a bank guarantee, which meant the family were creditors of a solvent arrangement rather than of a company, and it changed the negotiation from a recovery problem into an accounting one. Operators have failed in Israel, and the residents who lost money were the ones who could not say which Section 27 security stood behind their deposit. We also pulled the operating licence from the Supervisor's register and confirmed it was current.

Then we rebuilt the account line by line and sent it to the operator in June 2025. We accepted the 2% annual erosion in full, because the clause was in a contract the resident had signed and there was nothing wrong with it. We rejected the NIS 48,000 refurbishment charge outright, citing Section 28(b), and pointed out that the statutory cap is not a starting position for negotiation. We calculated the Section 28(d) linkage on the eroded balance from March 2019 forward and put it at NIS 351,560, which took the refundable figure from NIS 2,068,000 to NIS 2,419,560. On the post-death fees we took a practical line rather than a maximal one: the family had cleared and handed back the apartment forty-five days after the death, and we offered forty-five days of fees, NIS 13,350, rather than five months of them.

The probate side ran in parallel and took longer than the negotiation. She had died domiciled in England leaving an English will. Under Section 136 of the Succession Law 1965 the Israeli court has jurisdiction because she left assets in Israel, and under Section 137 the law governing the succession is that of her domicile at death, so English law decided who took the money. The family obtained the grant of probate from the Probate Registry, had the grant and the will apostilled by the FCDO Legalisation Office in Milton Keynes at £45 per document on the standard postal service, and we filed for an Israeli will execution order (tzav kiyum tzava'a) with certified Hebrew translations. Because foreign law had to be applied, the Inheritance Registrar (Rasham HaYerushot) referred the file to the Family Court rather than issuing the order at registrar level, which is routine on a foreign-domiciled deceased and added about four months.

One small step saved a fortnight at the end. A refund of a deposit is a return of capital rather than income, but Israeli finance departments faced with a large payment to a foreign estate often stop and ask for a withholding certificate at the moment of payment. We settled that question with the operator's accountant in writing in September 2025, well before there was any money to pay.

In Practice: Where a foreign-domiciled person leaves Israeli assets, Section 136 of the Succession Law 1965 gives the Israeli court jurisdiction and Section 137 applies the law of the deceased's domicile, with Section 138 reserving Israeli immovable property. An application for a will execution order costs NIS 507 online plus NIS 66 for the statutory newspaper notice at the Inheritance Registrar (Rasham HaYerushot), and an uncontested Israeli will is ordered in three to six weeks. This one took five months, because a will governed by English law is referred on to the Family Court.

The Outcome

The operator settled in November 2025 at NIS 2,362,000. That accepted the linkage in full, dropped the refurbishment charge to the NIS 10,000 statutory ceiling, and split the difference on the post-death fees. Against the closing statement the family had received in April, it was NIS 386,500 more. The will execution order issued in January 2026 and the money was paid into the estate's Israeli account nineteen days later, inside the thirty days Section 28(c) allows. Israeli legal fees were NIS 41,000.

Moving the money to London was its own short exercise. The sum arrived in an account opened for the estate, and the bank's compliance department wanted the succession documents, the settlement agreement and the original 2019 deposit receipt before it would release a sterling transfer of that size. The receipt took the family three weeks to find in their mother's papers, which is a common enough delay that it is worth saying plainly: keep the deposit receipt and the signed contract somewhere the children can reach them.

On the British side the deposit was never a property interest, so nothing about it touched UK stamp duty or capital gains. It was a debt owed to her by an Israeli company, which is a foreign asset of her estate, reported on form IHT400 with schedule IHT417. The change of 6 April 2025 mattered here and will matter for many similar estates. UK inheritance tax now reaches worldwide assets on the basis of long-term residence rather than domicile, and a person who was UK resident for at least ten of the previous twenty tax years remains within its scope. She had lived in Israel for less than six years and had been UK resident for decades before that, so her Israeli deposit fell squarely inside the UK charge. Israel has levied no estate or inheritance tax since 1981, so there was no Israeli tax to set against the UK liability and no double charge to relieve. Our answer on buying into Israeli sheltered housing as a non-resident sets out what to check before signing, and our guide to long-term care and nursing homes in Israel covers the very different licensing regime that applies once a resident needs actual nursing care.

Key Takeaways

What this case illustrates for non-residents in similar situations:

1. The contractual erosion clause is the real cost, and the statute does not touch it. Two percentage points a year on a seven-figure deposit outweighs everything Sections 27 and 28 protect, and it is settled before signature or not at all.
2. Index linkage under Section 28(d) is not a courtesy. On a deposit paid in 2019 and refunded in 2025 it was worth over NIS 350,000, and it will not appear on the operator's closing statement unless you ask for it.
3. A retention above NIS 10,000 is unlawful whatever it is called. Refurbishment, cleaning and "restoration to original condition" charges are the usual labels, and Section 28(b) caps all of them together.
4. Ask which of the four Section 27 securities stands behind the deposit before any money moves, and keep the document. Israeli sheltered housing operators have failed, and the answer to that question is the difference between a negotiation and a loss.
5. Start the Israeli probate application the week of the death, not after the operator's figures are agreed. A foreign will governed by foreign law is referred to the Family Court and takes months, and Section 28(c)'s thirty-day clock does not begin until you hold the Israeli order.

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Facing a Similar Situation?

If a relative died in an Israeli sheltered housing residence and the operator has produced a closing statement you cannot follow, the three questions that decide the figure are which security was in place, whether linkage has been applied, and what the contract's erosion clause actually says.

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