IsraelLaw
Diaspora families often assume that transferring assets as a "gift" sidesteps the Israeli tax system entirely. A parent in Tel Aviv wants to give their apartment to a child living in New York. Grandparents in London want to wire a large sum into their grandchild's Israeli bank account. In each case, the question is the same: does Israel tax this?
The short answer is nuanced. Israel's Income Tax Ordinance does not impose a separate "gift tax" regime, but it does tax the underlying economic event — the transfer of an asset that has grown in value — regardless of whether that transfer is called a sale or a gift. For non-residents specifically, the rules carry important consequences that are frequently misunderstood. Understanding the difference between the legal form of a gift and its tax treatment under Israeli law is essential before transferring anything of value.
1. Israel's No-Gift-Tax Rule — What It Actually Means
Israel repealed its inheritance and gift tax legislation in 1981. Since then, there has been no dedicated gift tax law on the Israeli statute books. This fact is often cited by financial advisers to reassure clients that gifts in Israel are "tax-free" — and in many common situations, that statement is accurate enough. Transferring cash from one Israeli bank account to another, giving a car to a family member, or handing over shares in a private family company can all happen without triggering a tax charge specifically labeled as a "gift tax."
What the abolition of gift tax did not do is eliminate the tax liability that arises from the underlying economics of the transfer. Israeli tax law taxes gains on the disposal of assets — Section 88 of the Income Tax Ordinance defines "sale" broadly to include any transfer of ownership, including a gift. This means that if you gift an asset that has appreciated in value since you acquired it, Israeli tax law treats the gift as if you had sold that asset at its fair market value on the date of transfer. You are taxed on the gain, even though you received nothing in return.
The practical impact depends heavily on what type of asset is being gifted and who the parties are:
- Cash gifts: Not subject to Israeli income tax on transfer. Cash has no accrued gain to tax.
- Listed securities: The transfer triggers capital gains tax on the appreciation since purchase, unless a specific exemption applies.
- Real property: The transfer triggers capital gains tax (and potentially betterment tax, *Mas Shevach*) on the property's appreciation.
- Unlisted company shares: Treated as a deemed sale; capital gains arise on any increase in value since acquisition.
2. When Gifts Trigger Tax Under Israeli Law
Three conditions determine whether a gift transaction gives rise to an Israeli tax liability: (a) the nature of the asset, (b) the residency status of the giftor and recipient, and (c) whether any statutory exemption applies.
The Deemed-Sale Rule
When an Israeli tax resident gives away an asset that has appreciated in value, the Income Tax Ordinance deems a sale to have occurred at the gift date. The giftor is liable for capital gains tax on the difference between the asset's market value on the date of gift and its original cost (adjusted for inflation under Israeli rules). The recipient's cost base for future purposes is set at the market value on the date they received the gift — so any future gain they make is measured from that point.
The Family Exemption for Gifts of Real Estate
Under Section 62 of the Land Taxation Law (*Chok Misui Mekarkaim*), a gift of real estate from an individual to a relative is exempt from betterment tax. For this exemption a relative is a spouse, a parent or grandparent, a child or other descendant, a spouse's descendant, or the spouse of any of these. A brother or sister counts only where the donor received the property from a parent or grandparent as a gift or by inheritance. The gain is not forgiven: the recipient generally takes over the donor's original purchase position, so it is taxed when the recipient eventually sells.
Gifts of Real Estate to Non-Residents
Section 62 contains no residence condition. A gift of Israeli real estate to a close relative who lives abroad can therefore be exempt from betterment tax in the same way as a gift to a relative in Israel, and the exemption does not depend on whether the donor is an Israeli resident either. What changes for a non-resident recipient is purchase tax: the recipient pays one third of the ordinary purchase tax (Regulation 20 of the Purchase Tax Regulations), and for a non-resident that ordinary tax is the additional-apartment rate of 8% up to NIS 6,055,070 and 10% above. Gifts to people who are not relatives, and gifts of shares or other assets, are taxed under different rules, so take advice before the transfer.
3. Gifting Real Property to a Non-Resident: The Full Tax Picture
Israeli real estate is the most common asset class involved in international family gifts — typically, a parent who made *aliyah* decades ago and accumulated property wants to transfer an apartment to a child or grandchild living in the United States, Canada, the UK, or Australia. Before proceeding, the following taxes must be considered:
Capital Gains Tax (Mas Revachim)
The giftor — the Israeli resident making the transfer — is taxed on the capital gain accrued since they acquired the property. The gain is calculated by comparing the inflation-adjusted purchase price to the market value at the time of gift. For Israeli individuals, the capital gains tax rate on real estate depends on when the property was acquired relative to November 2001 (when a major tax reform took effect). Property acquired before that date may be subject to a blended rate; property acquired after is generally taxed at a flat 25% rate on real gains. A principal-residence exemption may apply to reduce or eliminate the gain if the giftor has lived in the apartment as their primary home for the required period. Where the recipient is the giftor's relative within Section 62 (for example a child or grandchild), the gift is exempt from this tax altogether, as explained above.
Betterment Tax (Mas Shevach)
If the property has benefited from any planning approvals, zoning changes, or building rights granted by the local planning authority since it was acquired, betterment tax may also apply. This is a separate charge administered by the local planning committees (*Va'adot Tikhnun*), not by the Tax Authority. The rate is typically 50% of the value uplift attributable to the planning benefit. For older properties that have gone through multiple zoning changes, this can be a material additional cost.
Purchase Tax (Mas Rechisha) for the Recipient
The recipient of a gifted property — even as a gift — is liable for purchase tax (*Mas Rechisha*) under the Real Estate Taxation Law. Where an individual gives the property to a relative (a spouse, parent, descendant, descendant's spouse or sibling), the tax is one third of the ordinary purchase tax under Regulation 20 of the Purchase Tax Regulations 5735-1974. The ordinary tax follows the recipient's own position: a non-resident, whatever their citizenship, pays the additional-apartment rates of 8% up to NIS 6,055,070 and 10% above, so a non-resident child receiving a NIS 3,000,000 apartment pays NIS 80,000. A gift of a right in a residential apartment to a spouse who lives with the donor in that apartment is exempt under Regulation 21, and a gift to anyone outside the relatives list pays the full tax. This is an often-overlooked cost that can amount to tens of thousands of dollars on a modest apartment.
Legal and Transfer Costs
In addition to tax, the transfer of real property requires registration with the Israel Land Registry (*Tabu* — officially the *Rasham HaMekarkaim*), involvement of a licensed Israeli attorney, and potentially a notarised power of attorney if the recipient is abroad and cannot appear in Israel. These costs are not trivial on a high-value property transfer.
4. Cash Gifts and Large Foreign Transfers to Israel
Gifting cash — whether from abroad into Israel or from an Israeli account to a non-resident — involves a completely different set of considerations. Since cash has no accrued capital gain, there is no capital gains tax event on a pure cash gift. However, several other rules come into play.
Receiving a Large Cash Gift in an Israeli Bank Account
If you receive a significant wire transfer into your Israeli bank account and describe it as a gift from a parent or relative abroad, the bank will almost certainly flag the transaction for compliance purposes. Israeli banks are required under anti-money-laundering regulations to report suspicious or large foreign transfers to the relevant authorities, and they will ask you to document the source and nature of the funds. You should be prepared to provide:
- A written gift agreement (*heskhem matana*) or letter from the giftor
- Documentation of the giftor's identity and their relationship to you
- Evidence that the funds originated from a legitimate source (such as savings, a property sale, or investment proceeds)
The documentation requirement is not a tax burden per se — it is a compliance and anti-money-laundering obligation. But failure to provide it can result in the funds being frozen pending investigation.
Israeli Tax Residents Receiving Foreign Cash Gifts
An Israeli tax resident who receives a large gift from abroad is not taxed on the gift receipt itself. However, if they are required to file an annual tax return (which applies to residents with certain levels of income, assets, or foreign holdings), they must declare the receipt of the gift in their return. The Israel Tax Authority can and does ask taxpayers to explain large unexplained inflows — particularly from foreign sources. Having a clear paper trail establishing the bona fide nature of the gift is essential to avoid having the funds treated as undisclosed income.
New Immigrants: The 10-Year Exemption
New immigrants to Israel (*Olim Chadashim*) and returning residents who have been outside Israel for at least 10 years benefit from a 10-year exemption from Israeli taxation on income and gains arising from foreign assets. This exemption, introduced in the 2007 tax reform, also substantially reduces the reporting requirements for foreign assets during the exemption period. For an Oleh who receives a large cash gift from abroad, the 10-year window provides significant protection — both from tax and from extensive reporting obligations. See our dedicated guide on Oleh tax benefits for full details.
Sending Cash from Israel to a Non-Resident Family Member
An Israeli resident who wishes to wire money abroad as a gift to a non-resident does not face Israeli gift tax on the transfer. However, Israeli banks may impose their own documentation requirements on large outgoing international transfers. The recipient's home country may impose its own gift or inheritance tax — a consideration that is entirely outside Israeli law but must not be overlooked. The United States, for example, requires US persons who receive gifts from a foreign person exceeding $100,000 in a tax year to report the gift on IRS Form 3520, though no US tax is payable on the gift receipt.
5. Gift vs. Inheritance Planning for Israeli Assets
One question that frequently arises among diaspora families is whether it is better to transfer Israeli assets during one's lifetime as a gift, or to leave them to heirs through an Israeli will or succession order. From a pure Israeli tax perspective, the analysis is not straightforward.
Inheritance: No Capital Gains at Death
A fundamental feature of Israeli tax law that many non-residents are surprised to learn: the transfer of assets on death does not trigger a capital gains tax event in Israel. When a person dies, their assets pass to heirs through the succession process without the accrued gain being crystallized. The heirs take the asset at the deceased's original cost basis — meaning the deferred gain continues to exist and will be payable when the heirs eventually sell. But no tax is due at the point of death itself. This is sometimes called "rollover" treatment at death.
The practical implication: leaving Israeli property to heirs through an Israeli will may be more tax-efficient than gifting it during one's lifetime, because the gift triggers capital gains immediately, while the bequest defers the tax to the heirs' eventual sale. The heirs also benefit from any future principal-residence exemption if they choose to live in the property.
When a Lifetime Gift Makes Sense Anyway
Despite the tax deferral advantage of inheritance, a lifetime gift can still be the right choice in several situations:
- The property has very low or zero accrued gain (recently purchased or purchased at high cost)
- A principal-residence exemption fully shelters the capital gain anyway
- The giftor wants to give the recipient immediate use of and control over the asset
- The giftor wants to simplify their estate and reduce future probate complexity
- There are concerns about contested inheritance among multiple heirs
In each of these situations, a properly structured gift — with legal documentation, correct tax filings, and coordination between Israeli and foreign tax advisers — can be executed cleanly. See our guide on estate planning for foreigners in Israel for a broader discussion of the options.
Gifting Shares in an Israeli Company
Foreign investors who hold shares in Israeli startups or private companies sometimes wish to gift those shares to family members. The deemed-sale rules apply here as well: gifting shares that have increased in value triggers capital gains tax for the giftor. The applicable rate depends on the nature of the shares (ordinary shares vs. preferred shares, whether held by an individual or a corporate entity) and any applicable tax treaty between Israel and the giftor's country of residence. Israel has double taxation treaties with over 50 countries that may reduce the applicable withholding rate. See our guide on double taxation treaties with Israel for country-specific rates.
6. Reporting Requirements for Gifts Involving Israel
Even when a gift is not taxable, it may still trigger reporting obligations — both in Israel and in the recipient's home country. Failing to meet these obligations can have serious consequences, including penalties, back taxes, and reputational harm with tax authorities.
Israeli Annual Tax Return Reporting
Israeli tax residents who are required to file an annual tax return (*Doch Shnati*) — which generally includes individuals with income above certain thresholds, those with significant foreign assets, and company directors — must report all income, gains, and significant transactions during the year. A gift of an appreciated asset that triggered capital gains must be reported in the tax return for the year of the gift, and the associated tax must be paid. Large cash gifts received from abroad should also be declared to avoid any suggestion of unreported income.
Anti-Money-Laundering Reporting by Banks
Israel's Prohibition on Money Laundering Law (*Chok Isur Halbanat Hon*, 2000) requires financial institutions to report suspicious transactions and to conduct due diligence on clients who make or receive large transfers. Practical thresholds for enhanced scrutiny typically begin around ILS 50,000 (approximately USD 14,000), though the bank's internal compliance policies may apply lower thresholds. Being prepared with documentation of the gift relationship — a signed gift agreement, identity documents, and source-of-funds evidence — will make the compliance process straightforward.
Foreign Reporting Obligations: A US Example
US persons who receive gifts from foreign individuals or estates must file IRS Form 3520 if the total received in a year exceeds $100,000. This is a reporting obligation only — no US gift tax is due on the receipt of a foreign gift. However, failure to file Form 3520 carries penalties of up to 25% of the gift's value. Similar reporting regimes exist in other jurisdictions (the UK, Canada, and Australia each have their own rules for large foreign transfers). Foreign nationals living outside Israel who receive Israeli assets as gifts should always verify their home-country reporting requirements with a qualified adviser in that country.
Israel Tax Authority Scrutiny of "Gift" Transactions
The Israel Tax Authority (*Rashut HaMisim*) has broad authority to challenge transactions labeled as gifts if the economic substance suggests otherwise. The Authority can reclassify a purported gift as a sale (if the "giftor" receives something of value in return) or as employment income (if the "gift" is from an employer). Indicators that raise red flags include: large gifts between unrelated parties, regular recurring transfers, gifts that coincide with services rendered, and transfers where the recipient has no established family connection to the giftor. A genuine family gift, properly documented and consistent with the family's wealth and relationship, will rarely be challenged.
A German investor who held an apartment in Jerusalem purchased in 2007 decided to gift it to his daughter living in Berlin, believing that the absence of gift tax in Israel meant no tax was owed. His Israeli attorney explained the taxes that do apply. The appreciation of approximately NIS 1.8 million above the adjusted purchase price was covered by the Section 62 exemption from betterment tax for gifts to relatives, which does not depend on where the donor or the recipient lives, but the gift still had to be declared to the Real Estate Taxation Office within 30 days of signing the gift deed. His daughter, as a non-resident, paid purchase tax at one third of the additional-apartment rate under Regulation 20. The attorney also warned that when she sells, the gain will generally be measured from her father's 2007 purchase, which is worth factoring into the family's plans.