Israeli Court Rules Higher Purchase Tax on Unfinished Home

An Israeli District Court judge has ruled that two brothers must pay the full residential property purchase tax on a duplex home they bought in Caesarea while it was still under construction. The buyers, David and Einat Sharvit and Avraham and Sarit Sharvit, had believed they were obligated to pay 5% of the transaction's value. However, the Tax Authority argued, and Judge Heri Kirsh agreed, that because the sellers had an obligation to complete the construction, the property should be taxed as a finished residence.

The ruling means the brothers will pay approximately 1.08 million shekels in purchase tax, an increase of 430,000 shekels compared to their initial calculation. The sellers, Yuval Aaron and Roni Biton, had purchased the land in 2021 and subsequently contracted with construction companies owned by their fathers to demolish the old house and build a new one for 4 million shekels. They then sold the plot to the Sharvit brothers in 2022, who assumed the contracts with the construction companies, agreeing to pay 2 million shekels per family for the work.

The Tax Authority initially assessed the purchase value at 6.5 million shekels per family, later increasing it to 7.5 million shekels to include future construction costs. An appeals committee at the Haifa District Court rejected this increase, and the Tax Authority's appeal is pending before the Supreme Court. The current ruling is based on the lower assessment.

Judge Kirsh cited the definition of a "residential apartment" for tax purposes, which includes properties intended for residence, excluding those where the seller is not committed to finishing construction. He noted that while a shell of a building is not considered a residence, buying an apartment "on paper" from a contractor typically is, due to the contractor's commitment to completion. In this case, the judge found that the Sharvit brothers purchased a "package" that included the property rights and a commitment to finish construction, with the building already in an advanced stage. He emphasized the close link between the sale and the ongoing construction, as well as the familial connection between the sellers and the contractors, leading to the conclusion that the buyers were acquiring finished residences rather than engaging in self-construction on a plot of land.

Members of the appeals committee, Zvi Friedman and Micha Lazar, concurred with Judge Kirsh's decision. The Sharvit brothers were represented by attorneys Hananel Barhum and Mordechai Cohen, and the Tax Authority by attorney David Ohana.