Buying a Second Home? What to Expect for Purchase Tax
Every so often, it happens again, the temporary order that sets the level of purchase tax on an additional home, often called investor purchase tax, is about to expire, and the real estate industry is on edge. The deadline is the end of this year, but the pressing issue is already on the desks of professional officials. ● Real estate investors have abandoned the market, and do not believe the purchase tax will be cut ● The Tax Authority demanded NIS 4.6 million from Rafi Agiv. What did the court decide?
With elections on the visible horizon, and with them a transitional government period that effectively creates a freeze in government activity, the question takes on added urgency, in an effort to deal with this hot potato in advance. "Unambiguously, the intention is an extension."
The purchase tax on an additional home is relatively high, 8% for a home bought for up to NIS 6,055,070, and 10% on the amount above that. The tax was set during the tenure of Moshe Kahlon as finance minister more than a decade ago, in an effort to cool investor purchases and housing prices. At the end of 2024, it was decided that the tax rate would remain in effect for two years, that is, until the end of 2026. If the temporary order is not extended, the purchase tax will return to its previous level, so that in the first bracket it will stand at only 5%.
That is a period of half a year, which on the face of it sounds sufficient, but in practice it is not so simple. First, elections are expected toward the end of the year, and around them a transitional government period, which will make it difficult to pass new legislation. Second, the last time the Finance Ministry tried to advance a decision on the matter, in 2024, months of fighting passed before the decision was approved, almost at the last minute.
Tax Authority Director Shay Aharonovich recently addressed this and said, "On 1.1.27, purchase tax on an additional home is supposed to return to 5%-6%. We will then probably be in some kind of transitional government. The next government will have to decide whether to extend the temporary order or not. I do not know what the decision will be. The current government should say clearly whether to extend the order."
The government's position has not yet been heard, but professional officials at the Finance Ministry say the direction is clear: "From the Finance Ministry's perspective, both the chief economist and the Tax Authority, the purchase tax should remain at 8%," said recently Tamar Chin, coordinator for housing and urban renewal in the Budget Department at the Finance Ministry. "There is no doubt that we do not want to see the drop to 5%. I am saying this unambiguously, the intention is an extension."
It should also be noted that one of the main fears in the market is once again reaching a last-minute decision. Many experts argue that if the decision is not made far enough in advance, the market falls into a state of uncertainty that leads investors to wait until the change, and the result will be a general freeze in transactions. Therefore, as industry figures often explain, such a decision should not be left hanging, and should be made as early and as quickly as possible, to prevent a worsening of the slowdown in the market in the months leading up to the end of the temporary order.
Over the years, the purchase tax rates on an additional home have changed fairly often, mainly because they were changed under temporary orders with a fixed expiration date. About two years ago, the Finance Ministry sought to entrench the current tax rates in law, but was blocked, and had to settle for another extension of the temporary order for two years.
The Finance Ministry sought to entrench the tax rate, and was blocked. The Finance Ministry has insisted over the years that raising the purchase tax is meant to stop the rise in apartment prices, even though the last time it admitted that "this effort has not yet achieved its goal." According to the professional view presented by ministry officials around the previous decision to keep the tax at a high level, the idea of keeping a high tax on a second home was intended "to moderate demand for apartment purchases by investors and help curb rising apartment prices," as well as create tax stability in the market.
It appears that the reason for the desire to fix the tax rates is that same "volatility." In 2015, the purchase tax rose to 8% under a temporary order for five years. In July 2020, Finance Minister Israel Katz decided to reduce the tax to 5%, amid fears of a freeze because of COVID-19. His successor, Finance Minister Avigdor Liberman, raised the tax again to 8% at the end of 2021, as a temporary order for three years, and as noted, at the end of 2024 the temporary order was extended once again, for two years.
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