Introduction to Property Gifts Between Relatives
The free transfer of real estate between relatives is a common strategy in Israel for optimizing property-related taxes. Under current law, real estate rights can be transferred to a relative without capital gains tax, with only one-third of the usual purchase tax being paid. This process is regulated to prevent abuse and tax evasion, with retention periods defined between three and four years, depending on legal criteria.
Legal Definitions of “Relative”
The definition of “relative” varies according to tax context. For capital gains tax, it includes a spouse, parents, offspring, and their spouses. For acquisition tax, it also includes siblings and grandchildren.
Transfer Between Siblings
Since the law of August 1, 2013, a free transfer between siblings is exempt from capital gains tax only if the apartment was inherited from parents or grandparents. This transfer also provides a reduction in purchase tax.
Transfer Between Spouses
A free transfer between cohabiting spouses is entirely tax-exempt. If the couple does not live together, one-third of the acquisition tax applies. In cases of divorce, court-ordered transfers are also tax-exempt.
Considerations for the Donor
- Optimization of Acquisition Tax:
- When a property owner wishes to acquire a new apartment, they can transfer the current property to a relative to benefit from the reduced purchase tax, avoiding higher rates for buying an additional apartment.
- This can be done before or after purchasing the new property, with a commitment to sell the first apartment within legal deadlines.
- Exemption from Capital Gains Tax:
- To benefit from capital gains tax exemption when selling a property, the donor can transfer one apartment to a relative before selling the other.
Choosing the Recipient
Choosing the right recipient requires careful consideration of their tax situation and future real estate plans. For example, a child who already owns a property might lose tax advantages if gifted another apartment.
Precautionary Measures
Even after the transfer, the donor can retain some control through an agreement blocking transactions without their consent. Such measures are crucial to prevent the tax authorities from considering the transfer as artificial.
Conclusion
Rigorous tax planning and consultation with a real estate law expert are essential when transferring property without compensation between relatives. This ensures legal compliance and optimizes tax benefits.
