Gift Agreements and Tax Traps

The concept of a "transfer without consideration" of an apartment between family members - used to avoid second-property purchase tax - is well known. The most common form is transferring an apartment to a child when the parent buys a new apartment, or transferring between spouses, between siblings, or as a gift from parent to child.

How does it work?

A transfer to a child seems straightforward, but you must also account for the purchase tax brackets and run a careful calculation for each case. The transfer does indeed exempt the parent from second-property tax on the next purchase, but it can sometimes create a different tax liability for the recipient.

For example: if a couple wants to buy a second apartment, the second-property purchase-tax brackets on a property valued at ILS 5 million can come to roughly ILS 240,000. In simple terms - for a second apartment valued at ILS 5 million, tax is paid at 5%–8% on the first ILS 1.9 million, with higher brackets on the remainder.

Note: Purchase-tax tables and bracket thresholds are updated annually. It's important to verify the precise calculation with a real-estate or tax attorney before making any decision.

Critical things to check before transferring

• Who is the recipient? A child who does not yet own an apartment is entitled to a tax break. A child who already owns one may have to pay second-property tax.
• The gift threshold for a child: A "gift to a child" allowance applies to married children - at a value roughly tied to about 4.1 years of average national wage (the figure changes).
• Holding period: Important - once a child receives the apartment, selling it within a certain period may trigger capital-gains tax. There are bracket-by-period rules to consult.
• When to consider an alternative: Sometimes a different mechanism is preferable - partial sale, a loan agreement, or a financial-relations agreement - depending on the family situation and assets.

Looking ahead

Before any transfer-without-consideration move, it's important to calculate the full cost of the move for all parties - both the giver and the recipient. What looks like a saving on second-property tax can become a "tax accident" for the recipient if professional planning is not done in advance.

Bottom line

Gift transfers are a powerful planning tool - but they are not the default. Every case requires careful, professional calculation in advance: who the parties are, what they want to achieve, the timing, the expected next sale, and what alternatives might serve better.

Editor's note: this article is based on Israeli purchase-tax regulations as published at the time of writing. Tax rates and bracket thresholds are updated annually - please verify the current figures before any move.