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What is Inheritance Tax?
Inheritance tax is a tax on anything a person can inherit, including property, finances, and assets. In many countries, inheritance tax above a certain amount is taxed as a tool of distributive justice. It’s usually taxed by a percentage of value.
Inheritance tax creates social equality by preventing assets and capital from accumulating in the hands of just a few families. Additionally, it’s an important source of income for the state treasury. Each country determines the specific details of how inheritance is taxed, meaning that inheritance tax in Israel operates differently from how it might in your home country.
Inheritance Tax in Israel
Despite the advantages of inheritance tax, it was abolished in Israel in 1981 due to concerns about efficiency and profitability. The worry was the cost of collecting the tax would be higher than the income derived from it.
Further, there was apprehension that a black market sector would emerge in the field of inheritance. Essentially, the fear was that people would transfer assets outside of state control in order to avoid paying a tax on it.
An additional concern was the possible smuggling of capital outside of Israel in order to carry out inheritance transfer processes in countries without inheritance tax.
Tax on Inheritance in Israel: The Importance of Planning
Despite the fact that Israel does not have a formal and direct inheritance tax, advance tax planning is still crucial. Without proper tax planning, heirs may face unnecessary costs, especially in the field of real estate.
Considerations include:
- If heirs agree to it, or one of the parties withdraws, you can increase tax costs and increase the share of each heir.
- If the property is sold as a “residential apartment rewarded with tax incentives,” in accordance with the conditions established by law, real estate tax law exempts the seller from paying tax.
- As such, there are various provisions related to inheritance tax according to the type of property in question.
Tax on Real Estate Inheritance
Though there aren’t direct taxes on inheritance in Israel, there are procedural processes that can be considered an indirect tax. For example, inherited debts must be subtracted from the amount of the inheritance. Further, tax expenditures may occur in cases when you failed to do any pre-planning, especially when it comes to real estate.
In spite of Article №4 of the Law on Property Taxes, which says that inheritance is not a sale of activities or real estate association, inherited property is not taxed. This property tax can be avoided in various ways, such as pre-planning division of property between the heirs and the manner of sale of the property.
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