Do I pay UK capital gains tax when I sell my Israeli property?

A UK resident selling an apartment in Tel Aviv faces two tax systems, not one. The UK taxes its residents on worldwide gains, so the disposal of Israeli property falls within UK capital gains tax even though the asset sits abroad. Israel taxes the same gain first, as betterment tax (mas shevach), at up to 25% of the real gain for an individual. The double taxation convention between the UK and Israel resolves the overlap through foreign tax credit relief: the Israeli tax you pay is credited against your UK CGT on the same gain. The practical result is that you broadly pay the higher of the two charges rather than suffering both in full.

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Detailed Explanation

Israel has the first taxing right because the property is situated there. On sale you file a betterment tax declaration with the Israel Tax Authority within the statutory window, and the tax is computed on the real (inflation-adjusted) gain under Section 48A of the Real Estate Taxation Law 1963, with the individual rate capped at 25%. A buyer's representative or the authority will often require a withholding clearance (ishur nikui) before the Land Registry transfers title, so the Israeli tax is effectively settled around completion. None of this depends on you being in Israel; it is handled remotely through an Israeli lawyer, as we explain in our guide to the withholding certificate when selling Israeli property.

The UK side then layers on. As a UK resident you report the gain to HMRC, and since this is foreign property the disposal goes on the foreign pages of your self assessment return rather than the 60-day UK residential property service, which applies to UK-situated residential property. UK residential property gains are taxed at 18% or 24% depending on your income band, on the gain computed under UK rules, which can differ from the Israeli figure because the two systems measure cost, improvements and inflation differently. The treaty's elimination-of-double-taxation article lets you set the Israeli betterment tax against the UK liability as a foreign tax credit, capped at the UK tax on that gain. If your Israeli tax exceeds the UK tax, the excess is not refunded by HMRC; if the UK tax is higher, you pay the difference to HMRC. Because the gain is measured differently in each country, the timing and currency of the calculations matter, and this is where UK residents most often get the figure wrong. The treaty mechanics sit alongside the broader points in our UK-Israel tax treaty guide for British non-residents.

In Practice: Under Section 48A of the Real Estate Taxation Law 1963, an individual's betterment tax is capped at 25% of the real gain and is settled with the Israel Tax Authority (Rashut HaMasim) around completion, often via an ishur nikui withholding clearance issued within a few weeks. The UK-Israel double taxation convention then credits that Israeli tax against UK CGT charged at 18% or 24% on UK-residential rates, reported to HMRC on the foreign pages of self assessment by the 31 January deadline following the tax year of sale.

Key Considerations

• A UK resident is taxed on the worldwide gain, so Israeli property sales are within UK CGT.
• Israel taxes first, at up to 25% betterment tax on the real gain for individuals.
• The treaty gives foreign tax credit relief, so you broadly pay the higher of the two taxes.
• The gain is computed differently in each country, so the two figures rarely match.
• Excess Israeli tax over the UK charge is not refunded by HMRC.

When to Consult a Lawyer

This question typically requires professional legal advice when:

• The Israeli and UK gain calculations diverge and you need to model the net cost.
• You are timing a sale and want to manage the interaction between the two charges.
• An Israeli withholding clearance is delaying completion or the credit position is unclear.

A qualified Israeli lawyer working with your UK accountant should model both charges before you exchange, because the credit only works cleanly when both filings line up.

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Speak With an Israeli Attorney

We handle the Israeli side of a property sale for UK residents, secure the betterment tax assessment and withholding clearance, and coordinate with your UK accountant so the foreign tax credit is claimed correctly against HMRC.

Contact us for a confidential initial consultation.