Court Upholds Tax Authority's Demand for Higher Purchase Tax on Grandfather's Property Gifts to Grandchildren

A grandfather who bought 12 apartments in Ramat Gan for his minor grandchildren was ordered to pay about 2.5 million shekels more in purchase tax than he initially intended. The District Court sided with the Israel Tax Authority, ruling that each apartment counts as an additional property for the family unit, not as the grandchildren's sole residence. Each apartment was purchased for approximately 3.5 million shekels.

The grandfather aimed to give each grandchild a separate apartment with full property separation from the parents, transferring rental income into dedicated accounts under the minors' names, restricting parental access. Based on this separation, he sought to pay the reduced tax rate applicable to a single property, amounting to about 75,000 shekels per apartment. However, the Tax Authority classified the apartments as additional properties, charging roughly 283,000 shekels each.

Central to the ruling was the "family unit" presumption, which treats parents and minor children as one unit for purchase tax purposes. Since the grandchildren live with their parents, the apartments registered under the grandchildren's names were deemed additional family properties. The court acknowledged the grandfather's intent to provide genuine, separate assets rather than artificial ownership, but determined the apartments primarily serve as investments since they are rented out and not used as residences for the minors.

This decision also affects future capital gains tax upon selling the apartments, as the properties will not qualify as sole residences, potentially forfeiting further tax benefits. The court urged lawmakers to clarify this issue but rejected the appeal. The ruling highlights that families buying property for minor children must carefully assess tax liabilities upfront, as registering property in a child's name or using separate accounts does not guarantee single-property tax status.