If you are the owner of several residential units, in which your total ownership percentage is 249% or more, you should read this article because a new tax applies to you.
The tax applies to all of the individual's residential units, except for two, by personal selection. In case the owner does not choose, the tax applies on the cheapest units, according to the Tax Authority information. So when the total ownership percentage is 249% or more, the levying of the tax applies on all of the units, except for the two selected - for example:
An individual who owns 3 units with ownership percentage of 100%, 100% and 49%, will be taxed for one unit.
An individual who owns 4 units with ownership percentage of 50% for each unit won't be taxed according to this law because his total ownership percentage is less than 249%.
An individual who owns 10 units with ownership percentage of 50% for each unit will be taxed for 8 units.
The tax rate stands at 1% of the "determining amount" of the residential unit, calculated according to the Tax Authority's formula (you can find a calculator on the Tax Authority website), up to a ceiling of NIS 1,500 per month (up to NIS 18,000 annually).
Whoever owns investment residential units which total less than NIS 1,150,000, is exempt from tax. Investment residential units are all the units owned by the individual, except for one unit, with the highest determining amount. If the determining amount of the investment units exceeds
NIS 1,150,000 and less than NIS 1,400,000, proportional tax applies.
According to the law, an individual and his/her spouse (except for a spouse residing separately on a permanent basis), and whose children are less than 18 years of age are seen as a single owner, so the tax liability applies to them together and separately. Residential units owned by rights in a close-held association is also deemed as a residential unit owned by an individual.
If you are an owner of multiple properties who is liable for tax, don't wait! You should have filed a declaration that contains details on the residential units by March 31, 2017.
The tax is charged according to the date you received your ownership rights (signing of the agreement), and not according to the date you got the possession, so you need to relate to the date of the agreement and not to the date on which you got possession which may be much later.
An inherited residential unit will not be taxable in the first year after the death of the testator, unless it was rented. There are residential units that won't be taken into consideration for tax imposition, such as 'amutot' – Non-Profit Organizations (NPOs) and companies for the public benefit (CPBs).
There is an option to avoid the tax by passing the unit to the children as a present on condition that they are over 18 years old. On the one hand, this transfer will save tax payment, and on the other hand this act bounds with full ownership transfer and cases such as the children's marriage need to be taken under consideration.
To encourage those who are subject to multiple units tax to sell their units, a grant will be given to whoever has sold or will sell his residential unit, commencing from 1.1.2017 through 1.10.2017. They will be entitled to a grant under the following conditions:
1. The sale is not free of charge and not for a relative, and it is not a Zoning Change.
2. The buyer does not own a unit or he is the owner of a residential unit who declared that he is improving his housing, who undertakes to sell the old unit within 18 months from the purchase date.
3. The grant recipient did not purchase a residential unit from 16.12.2016 through 31.12.2020, unless he purchased a home that is subject to purchase tax according to the levels of a single residential unit.
4. The seller filed a declaration that includes details of the residential units until March 31, 2017, or with the report of the sale, whichever is earlier.
The amount of the grant will be the amount of the betterment tax or NIS 85,000, whichever is lower, and the grant will be given on no more than 3 sales of residential units.
People who own three or more residential units, but are exempt from the tax, since the investment residential units they own are valued at up to NIS 1,150,000, will be entitled to a grant of NIS 15,000 or 50% of the betterment tax, whichever is lower.
The tax on multiple residences arose from the belief that the imposition of tax will reduce the price of housing, but it has brought along with it severe criticism, and a petition was filed to the High Court of Justice. The petition seeks to disable the new tax because it is offensive and causes a violation of the right to equality, human rights and the right to property.
Iris Stark, C.P.A. and M.A. (Econ), is a partner in Stark & Stark Accountants