Do Non-Residents Pay Inheritance Tax in Israel?

Israel abolished its inheritance tax in 1981. The Inheritance Tax (Repeal) Law 1981 (Chok Bitvul Mas HaYerusha) terminated the Inheritance Tax Law 1949, and the obligation has never returned. No inheritance tax, estate tax, or death duty applies to Israeli assets — for residents or non-residents, regardless of the size of the estate, and regardless of whether the deceased was an Israeli citizen. An heir who inherits an Israeli apartment, bank account, or portfolio of Israeli securities owes Israel nothing as a direct consequence of the inheritance itself. The subject of reinstating some form of estate levy surfaces periodically in Israeli political debate, but no proposal has advanced to enactment in 44 years. The position is settled.

What is less obvious — and what surprises many non-resident heirs — is that the absence of an inheritance tax is not the same as a tax-free inheritance. Several Israeli taxes become relevant depending on what you inherit and what you do with it, and the home-country tax authorities of non-resident heirs may have their own interest in an inherited Israeli estate even when Israel does not.

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Detailed Answer

Three Israeli taxes can arise from an inheritance, none of them triggered by the inheritance itself but by subsequent events.

The most significant is the betterment levy (mas shevach) — Israel's capital gains tax on real property — which applies when inherited property is sold. Under Section 26 of the Real Estate Taxation Law 1963, the cost base for the gain calculation is not the market value of the property at the date of death, but the original acquisition cost paid by the deceased. This is a critical difference from the position in most English-speaking countries: the UK resets the cost base to market value at death under the Taxation of Chargeable Gains Act 1992; the US does the same under IRC Section 1014; Australia has comparable rules for assets passing on death. Israel does not. A property the deceased purchased for NIS 350,000 in 1995 and left to you at a current value of NIS 2,800,000 carries a taxable gain of approximately NIS 2,450,000 — before the inflation linkage adjustment — when you sell it. For non-residents, the single-apartment exemption (petur dirat megar) under Section 49 of the Real Estate Taxation Law 1963 is unavailable; that exemption requires Israeli tax residency. The standard betterment levy rate for non-residents is 25% of the taxable gain. For properties acquired before January 1, 2014, a proportional linear reduction applies that allocates part of the gain to the pre-2014 period when different rates applied, reducing the effective tax.

The second is income tax on income generated by inherited Israeli assets while you hold them. Rental income from an inherited Israeli apartment is subject to Israeli income tax; under Section 122 of the Income Tax Ordinance 1961, a non-resident landlord may elect to pay a flat 10% on gross rental receipts rather than standard progressive rates on net income. Dividends from inherited Israeli company shares attract withholding tax at 25% (or 30% for a substantial shareholder), with potential reduction under a bilateral double-taxation treaty if one exists between Israel and the heir's country of residence.

The third is not a tax but is frequently mistaken for one: the Anti-Money Laundering compliance review conducted by Israeli banks under the Prohibition on Money Laundering Law 2000 when releasing estate funds to a non-resident heir. The review is mandatory for international transfers above NIS 50,000 and takes 5–15 business days on a complete document set. No tax is assessed — but the funds are held during the review, and a partial or unclear document file resets the clock.

In Practice: Under Section 26 of the Real Estate Taxation Law 1963, an Israeli apartment purchased by the deceased in 1998 for NIS 350,000 and now worth NIS 2,800,000 carries a taxable gain of approximately NIS 2,450,000 (before inflation adjustment) when the heir sells — despite the heir having received the property at no cost. At the 25% non-resident rate, the betterment levy payable to the Israel Tax Authority (Rashut HaMasim) Real Estate Taxation Office is approximately NIS 612,500. The betterment levy declaration must be filed within 30 days of signing the sale agreement under Section 73(b) of the Real Estate Taxation Law 1963; under Section 15(a), the buyer's attorney must simultaneously withhold 7.5% of the total sale consideration — on a NIS 2,800,000 sale, NIS 210,000 — and remit it to the ITA pending the final tax assessment. The clearance certificate (ishur mas shevach) that releases the withheld funds to the seller typically takes 30–60 days from a complete tax file at the relevant ITA district office.

The home-country dimension is where non-resident heirs most often underestimate their obligations. Israel imposes no inheritance tax, but the heir's own revenue authority may be independently interested in the received estate.

UK-resident heirs should understand that UK inheritance tax is assessed on the estate of a UK-domiciled deceased — not on the heir. If the deceased was UK-domiciled, their Israeli assets may be subject to UK inheritance tax at 40% above the nil-rate band, regardless of where those assets sit. The heirs are not personally taxed, but the estate is, and the net amount reaching them is reduced accordingly. Separately, UK residents who inherit income-producing Israeli assets must report that income to HMRC under the standard self-assessment framework.

US citizens and residents who receive a foreign inheritance — including an Israeli one — exceeding USD 100,000 in a single tax year must file IRS Form 3520 with their federal tax return. No US tax is assessed on the inheritance itself, but the reporting obligation is mandatory and carries a penalty of 5% of the inherited amount per month for late or non-filing, up to 25% of the total value. That obligation exists regardless of whether any Israeli tax was owed. For a complete explanation of the probate process that precedes any distribution, see our guide on the complete Israeli probate process.

Israeli banks participate in the Common Reporting Standard (CRS), the OECD's automatic tax information exchange framework. When an Israeli bank releases estate funds to a non-resident heir's foreign account, it reports the transaction to the Israeli tax authority, which shares the information with the tax authority in the heir's country of residence. A non-resident heir who concludes that "Israel doesn't tax it, so I have nothing to report at home" and fails to declare the received funds may find that their own revenue service already knows about the transfer.

When to Consult a Lawyer

• The deceased may have been domiciled in the UK at the time of death — UK inheritance tax can apply to Israeli assets of a UK-domiciled estate at 40% above the nil-rate band, and determining domicile requires legal analysis that cannot be resolved by looking at the deceased's Israeli assets alone
• You are a US citizen or US-resident heir and the total inherited amount from Israeli assets may exceed USD 100,000 in one tax year — IRS Form 3520 is due with your annual return and the penalty for non-filing is 5% of the inherited amount per month, making prompt professional advice significantly cheaper than the consequence of oversight
• You are planning to sell inherited Israeli property and want to calculate the betterment levy exposure and whether the pre-2014 linear reduction or a double-taxation treaty provision reduces the liability before committing to a sale price or accepting a buyer's offer

A qualified Israeli attorney familiar with cross-border estates should be consulted before any inherited Israeli asset is sold, transferred, or reported to a home-country tax authority — the interaction between Israeli law and the heir's home-country obligations is where most costly mistakes originate.

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Speak With an Israeli Attorney

Israel's abolition of inheritance tax in 1981 is genuine and unconditional — no Israeli levy applies to the inheritance event itself. The tax exposure that matters to a non-resident heir arises later: on the sale of inherited property, on income those assets generate, and on the heir's own home-country reporting obligations. Understanding all three before any asset moves is the work of an informed Israeli attorney with cross-border experience.

Contact us for a confidential initial consultation.