What is a withholding certificate (ishur nikui) and how do I get one when selling Israeli property?

Selling an Israeli apartment while living in the UK means dealing with a mechanic most foreign sellers never expect: the buyer is legally required to withhold part of the sale price and pay it to the Israel Tax Authority (Rashut HaMasim) on your behalf — unless you obtain a certificate first. That certificate, called an ishur nikui (literally, "cleaning authorisation"), adjusts the withholding to reflect your actual tax liability. Without it, the buyer withholds 7.5% of the gross sale price, regardless of whether your capital gains tax liability is lower, zero, or not yet calculated.

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Detailed Answer

Why the withholding exists. Under Section 15a of the Real Estate Taxation Law 1963, any Israeli property sale by a non-resident triggers a mandatory withholding obligation on the purchaser. The default rate is 7.5% of the gross sale price. On an NIS 3.5 million apartment, that is NIS 262,500 held back. The purpose is to ensure the ITA collects tax from sellers who, once they leave Israel, become difficult to pursue. The withholding is not the final tax — it is a security deposit. The actual tax is calculated separately based on the capital gain.

How to get the certificate. The seller's Israeli attorney or accountant (roa' heshbon) prepares a capital gains calculation and submits it to the Israel Tax Authority before or shortly after signing the purchase agreement. The ITA then issues an ishur nikui specifying either a reduced withholding rate or a full exemption. If you qualify for the single-apartment exemption under Section 49b of the Real Estate Taxation Law 1963 — which for UK residents requires that you owned no other residential property in Israel or abroad at the time of sale — the certificate can reduce the withholding to zero. Where a capital gains tax liability does exist, the ITA typically sets the withholding at a rate matching the estimated tax, so the buyer pays that amount directly to the ITA rather than to the seller.

From the UK, your Israeli attorney handles the ITA filing remotely. You will need to provide proof of UK residence, the original purchase documents, and supporting figures for any improvement expenses that reduce the gain. UK residents should note that capital gains on Israeli property also form part of their UK taxable income; the ITA tax paid in Israel is creditable against UK capital gains tax under the UK-Israel double taxation treaty, but only if properly documented.

In Practice: Under Section 15a of the Real Estate Taxation Law 1963, the purchaser must remit the withheld amount to the Israel Tax Authority within 7 days of closing. Without an ishur nikui, the ITA holds the withheld sum until the seller files a full capital gains return — typically a 6–12 month process. On an NIS 3.5M sale where the actual tax is NIS 60,000, the seller who skips the certificate has NIS 262,500 locked with the ITA for up to a year. Reclaiming the excess requires a separate refund application (hahzarat yeter mas) to the ITA's real estate department; delays of 12–18 months are common.

When to Consult a Lawyer

• You are eligible for the single-apartment exemption but also own property abroad — the exemption rules under Section 49b treat foreign property holdings as disqualifying in some circumstances, and the threshold conditions are frequently misapplied.
• The property was inherited rather than purchased — the cost basis calculation for inherited property differs from purchased property, and the ITA certificate must reflect the correct deemed acquisition date and value.
• You have not filed Israeli tax returns in prior years when you rented the property — the ITA may offset unpaid rental income tax against any refund of withheld amounts before releasing funds to you.

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Speak With an Israeli Attorney

Obtaining the ishur nikui before the sale closes is the single most important step UK and other non-resident sellers can take to avoid having a large sum tied up with the Israeli tax authority for over a year.

Contact us for a confidential initial consultation.