Israeli Supreme Court Ruling Limits Local Tax on Property Value Increase from Unused TAMA 38 Plans

Earlier this week, Supreme Court Justice Yael Wilner upheld a 2025 ruling that local authorities cannot impose betterment levies on apartments whose value increased due to potential TAMA 38 (urban renewal) plans that were never executed. The court rejected requests for further hearings on this matter, confirming that approval of TAMA 38 alone does not constitute a taxable event justifying such levies.

The original October 2025 ruling by Justices Alex Stein, Noam Solberg, and Yosef Elron clarified that general urban plans like TAMA 38, which may or may not be implemented on a given property, do not guarantee applicability and therefore do not justify betterment levies. This contrasts with regular plans where implementation certainty is higher. Justice Stein emphasized that a causal link between the property's enrichment and the plan is required to impose the levy.

The ruling primarily affects high-value areas with active TAMA 38-related projects, notably central Tel Aviv and Jerusalem's Rehavia neighborhood. Between June 2025 and June 2026, nearly one-third of 1,194 district appeals on betterment levies were in Tel Aviv (375 cases) and Jerusalem (125 cases). Other affected cities include Ramat Hasharon, Petah Tikva, Givatayim, and Herzliya.

Financially, the impact is substantial. From 2018 to 2022, Tel Aviv collected approximately 890 million shekels in betterment levies linked to TAMA 38 projects in central districts, with potential cumulative amounts reaching into the billions. Jerusalem's collections are presumed lower due to fewer transactions. Real estate appraiser Giora Engelhardt noted levy amounts ranging from 80,000 to 400,000 shekels per property.

Legal and real estate experts differ on the ruling's effect on municipal practices. Some, like attorney Ohad Yarak, highlight significant financial relief for sellers and buyers and reduced backlog in appeals committees. Others, including appraiser Danny Treshansky, observe a shift from legal arguments to appraisal-based levy assessments, with recent reductions in levy claims but ongoing disputes. Attorneys Binyamin Zalmanovich and Ariel Kamenkovitz report new levy assessments by Tel Aviv authorities using alternative valuation methods, suggesting appeals will continue but on different grounds.