Israeli Retirees Can Significantly Reduce Capital Gains Tax on Investments After Age 60
When planning for retirement, beyond the total savings accumulated, the amount of tax paid on capital gains from financial products can greatly affect net wealth. In Israel, the standard capital gains tax rate is 25%, but there are important exceptions and reductions, especially for those over 60 years old.
For investment portfolios held in securities accounts at banks or investment houses, the tax rate can drop to as low as 10% for retirees whose annual taxable income does not exceed 193,000 shekels. The tax rate scales with income: 10% for up to 84,000 shekels, 14% for income between 84,121 and 120,720 shekels, and 20% up to the 193,000 shekel threshold. This benefit is not automatic and requires filing an annual tax return or refund request. Robi Saadi, CEO of Robi Financial Planning, warns many investors mistakenly assume the tax withheld at source is final, which can lead to overpayment.
Pension savings products such as pension funds, provident funds, and managerial insurance policies offer significant tax advantages. According to Avi Gigi, head of pension advisory at Bank Hapoalim, these products provide tax benefits on contributions, during accumulation, and at withdrawal. Capital gains within these products are tax-exempt as long as funds remain invested, allowing for tax deferral and growth. Retirees receiving a minimum pension of 5,306 shekels monthly can withdraw some funds as a lump sum with favorable tax treatment depending on the source of contributions.
A lesser-known option, "Amendment 190," offers retirees over 60 who receive the minimum pension the choice between a tax-free monthly pension or a lump sum withdrawal taxed at a reduced 15% nominal rate on gains. This is particularly advantageous during low inflation periods. Additionally, if the saver dies before age 75, beneficiaries can inherit the funds free of capital gains tax.
Investment savings vehicles like the "Keren Hishtalmut" (advanced study fund) are highly attractive, offering full capital gains tax exemption after six years and tax benefits on employer contributions. The "Provident Fund for Investment" allows annual deposits up to about 83,000 shekels (2026 limit), with normal 25% capital gains tax on early withdrawals but full exemption if funds are withdrawn as a pension after age 60.
Attorney Tali Yaron-Eldar, former Israeli Tax Commissioner, highlights common mistakes such as prematurely liquidating investment portfolios upon retirement without considering tax implications. She advises retirees to evaluate all income sources and potential capital losses before selling assets to optimize tax outcomes and potentially save thousands of shekels.
In summary, Israeli retirees have multiple legal avenues to reduce or even eliminate capital gains tax on their investment profits, but these require careful planning, awareness of income thresholds, and sometimes proactive tax filings.
