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

An affluent grandfather purchased separate apartments for each of his 12 minor grandchildren in a Ramat Gan project, intending to gift each child their own home. He sought a reduced purchase tax rate applicable to a single property, but the Israeli Tax Authority charged full purchase tax on each apartment, totaling approximately 2.5 million shekels in additional tax. The District Court upheld the tax authority's position, applying the "family unit presumption," which treats parents and minor children as a single buyer for tax purposes. Since each grandchild lives with their parents, each apartment is considered an additional property rather than a first home.

The court emphasized that the tax benefits for a single property aim to ease the purchase of a primary residence 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 home, the court ruled the apartments function more as investments than independent residences, thus disqualifying them from the single-property tax benefits. This ruling also affects future capital gains tax calculations when the grandchildren sell the apartments.

The decision raises questions about transferring real estate to children, especially minors, and highlights inconsistencies such as the difference in treatment between minors and adults living with parents. The judges called on legislators to clarify the law, avoiding imposing legal costs on the parties. The ruling impacts wealthy families who commonly buy property in their children's names as a financial strategy and underscores the need for thorough tax liability assessments before such transfers.

This case sets a precedent that could significantly increase tax burdens on families transferring real estate to younger generations and challenges the alignment between family intentions and tax regulations.