Brothers Lose Appeal on Reduced Property Tax for Caesarea Duplex

An appeals committee for real estate taxation in Tel Aviv has rejected an appeal by two brothers and their wives who sought to pay a reduced property acquisition tax on a duplex under construction in Caesarea. The buyers had argued they purchased land, not finished residences, and thus should qualify for a lower tax rate. However, the committee's chairman, Judge Heri Kirsch, ruled that the essence of the transaction was the acquisition of apartments in an advanced construction phase, not raw land for self-building.

The brothers, who intended to live near each other, signed two sales agreements in November 2022 for the property on Ha'Tena Street in Caesarea. At the time of the purchase, a duplex was being built on the land, with each half valued at NIS 5.5 million. The sellers had previously contracted with two construction companies for a total of NIS 4 million to build the house. The construction had reached the "finishing plaster (exterior and interior)" stage when the buyers took over the sellers' obligations in the construction contract, including the remaining payments.

The dispute centered on how to classify the properties for acquisition tax purposes. The brothers contended that since construction was not complete and the sellers had not committed to finishing it, the properties should not be considered "residential apartments." They argued for a reduced tax rate of 5%, applicable to non-residential properties. The Tax Authority argued that the economic substance of the deal, which involved intertwined sales and construction contracts, indicated the purchase of residential units, subject to the standard progressive tax rates for residential properties.

Judge Kirsch, with the agreement of the other committee members, sided with the Tax Authority. He determined that the buyers received a package deal that included both property rights and a commitment to complete the construction. "The essence of the transaction was the purchase of apartments in an advanced construction phase, not entering into an 'adventure' of self-building on purchased land," he wrote. The chairman emphasized the advanced stage of construction and the close link between the sales and construction agreements. He noted that while construction was not fully completed, it was significantly advanced, and not merely a shell, thus confirming the transaction's nature as the purchase of residential apartments.

The ruling also took into account that the construction companies were owned by the fathers of the two sellers, a circumstance the judge deemed unusual and which supported the conclusion that the buyers had effectively acquired residential apartments. Consequently, the committee unanimously rejected the appeals, but without imposing costs on the buyers due to the complexity of the issue.