Do I pay Israeli purchase tax when I inherit a property instead of buying it?

Non-resident heirs brace for the same 8% purchase tax bill that a foreign buyer pays, and it does not come. Inheriting a flat in Israel is not buying it. The transfer of a deceased parent's apartment into the children's names carries no purchase tax at all, which surprises almost everyone who has priced a purchase as a comparison.

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Detailed Explanation

Purchase tax (mas rechisha) is charged on a "sale" of real estate under the Real Estate Taxation Law 1963. An inheritance is not a sale. When the Inheritance Registrar or the court issues a succession order or a will execution order, the heirs register the property in their names at the Land Registry (Tabu) on the strength of that order, and no purchase tax is assessed on the transmission. This holds whether the heirs are Israeli or foreign, and whether they inherit one flat or several. The same logic means there is also no Israeli inheritance or estate tax, a point covered in the note on whether non-residents pay inheritance tax in Israel.

The first trap is in how the estate is divided. If the heirs simply take their shares as the will or the intestacy rules provide, the whole transfer stays tax-free. But if they reshuffle, say one sibling takes the whole apartment and pays the others cash from their own pocket to balance it, the part funded by that outside money can be treated as a purchase between the heirs and taxed. Dividing the estate using only assets that are already inside it stays clean; bringing in external cash is what creates a taxable event.

The second trap is deferred, and it is the expensive one for non-residents. Israel gives no step-up in cost at death. When the heir later sells, betterment tax (mas shevach) is calculated from the price the deceased originally paid, sometimes decades ago, not from the value at the date of death. So a flat bought for a modest sum in the 1980s can carry a large Israeli gain even if it barely moved in value since the parent died. That mechanism, and the inherited-apartment exemption that can wipe the tax out, are set out in the guide to the betterment levy and land appreciation tax.

In Practice: Under the Real Estate Taxation Law 1963 an inheritance is not a "sale," so registering an inherited flat at the Land Registry (Tabu) on a succession order carries no purchase tax, only registration fees of a few hundred shekels. Contrast the later sale: with no step-up under Section 26, a flat the deceased bought for NIS 300,000 and worth NIS 2.5M today can generate a mas shevach gain taxed at 25% on the real appreciation, assessed by the Israel Tax Authority, with the withholding certificate needed to release proceeds usually taking four to eight weeks.

Key Considerations

• Inheriting Israeli property carries no purchase tax, because inheritance is not a taxable sale.
• The exemption applies equally to non-resident heirs registering the flat on a succession order.
• Unequal division funded by cash from outside the estate can be taxed as a purchase between heirs.
• Israel gives no step-up in cost basis at death, so a later sale is taxed from the deceased's original price.
• A separate inherited-apartment exemption may remove the betterment tax on a later sale if conditions are met.

When to Consult a Lawyer

This question typically requires professional legal advice when:

• The heirs want one person to keep the apartment and compensate the others, and you need the division structured to avoid purchase tax.
• You are weighing an immediate sale against holding the flat and want the betterment tax exposure calculated first.
• The deceased's original purchase price or improvement costs are unclear and affect the future mas shevach bill.

A qualified Israeli attorney should structure the estate division and model the later-sale tax before you register or sell.

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Speak With an Israeli Attorney

We register inherited Israeli property for non-resident heirs, structure divisions so they stay free of purchase tax, and calculate the betterment tax exposure before any sale.

Contact us for a confidential initial consultation.