Israeli Court Rules Each Grandchild's Apartment Counts as Additional Property for Tax Purposes

An affluent grandfather purchased 12 separate apartments in Ramat Gan, Israel, one for each of his minor grandchildren, intending to gift each a home. He sought to pay purchase tax at the reduced rate applicable to a single property, approximately 75,000 shekels per apartment. However, the Israeli Tax Authority demanded full purchase tax as if each apartment were an additional property, about 283,000 shekels each, resulting in a total tax demand of roughly 2.5 million shekels.

The District Court upheld the tax authority's position, applying the "family unit presumption" which treats parents and their minor children as a single buyer for tax purposes. Since each grandchild lives with their parents in the family home, each gifted apartment is considered an additional property rather than a first home. The court noted that the tax benefits for a single property aim to assist first-time homebuyers and prevent tax avoidance through registering investment properties under family members' names.

Although the grandfather's intent was to provide each grandchild with their own residence, the court ruled the apartments function more as investments than primary homes, thus falling outside the social purpose of the tax relief. The ruling also highlighted inconsistencies, such as the difference in treatment between minors and adults living with parents, and the fact that inheritance of such property would receive tax benefits unlike gifts during the benefactor's lifetime.

The judges called on the legislature to clarify the law, leaving open questions about intergenerational real estate transfers. This precedent impacts wealthy families considering transferring real estate to younger generations, emphasizing the need for advance tax liability assessment. The decision underscores the tension between familial intentions and the strict economic criteria of tax authorities.