Quick Answer: The UK-Israel Double Taxation Convention reduces Israeli withholding tax on dividends paid to UK residents from the domestic 25% to 15% (or lower for substantial corporate holdings) and caps withholding on interest and royalties. UK residents claiming treaty benefits need an ITA nikui memas mekorot certificate before payments are made; without it, the Israeli payer deducts at the full domestic rate. The treaty uses the credit method — each country taxes what it is entitled to tax, and the other country credits that payment against its own tax. Israel has no savings clause equivalent to the US one, so British citizens who are Israeli tax residents are taxed by Israel as residents, not as British citizens, which simplifies planning considerably.

British nationals make up one of the largest groups of diaspora Israelis and are among the most active foreign buyers of Israeli residential and commercial property. They also run Israeli subsidiaries, invest in Israeli tech startups, and draw UK pensions while living in Tel Aviv. At every point where UK-source or Israeli-source money crosses the border, the UK-Israel Double Taxation Convention — a treaty first concluded in 1962 and updated by subsequent protocols — determines which government taxes what, and at what rate.

The treaty is not self-executing. To get the reduced rates it promises, a British national receiving Israeli income must take concrete steps with the Israel Tax Authority (Rashut HaMisim), and a UK resident with Israeli income must claim the foreign tax credit correctly on their UK Self Assessment return. Understanding the mechanics of both processes, and the situations where the treaty does not help at all, is the starting point for any cross-border UK-Israel tax planning.

1. What the UK-Israel Double Tax Treaty covers

The UK-Israel Double Taxation Convention follows the OECD Model Tax Convention structure. It allocates taxing rights between the two countries across all major categories of income:

  • Business profits — generally taxed only in the country where the business has its place of management or a permanent establishment
  • Dividends — the source country (Israel or the UK) can tax, but at a reduced treaty rate
  • Interest — same structure, source country taxes at a reduced rate
  • Royalties — source country taxes at a treaty-capped rate
  • Capital gains — the treaty allows Israel to tax gains on Israeli real estate, Israeli real property companies, and certain business assets; other capital gains are generally taxable only in the residence country
  • Employment income — taxed in the country where the work is performed, with a 183-day exemption for short-term assignments
  • Pensions — generally taxed in the country of residence
  • Directors' fees — taxable in the country of the company paying them

The treaty also contains a standard non-discrimination article, a mutual agreement procedure for resolving disputes between the two tax authorities, and an exchange of information article under which HMRC and the Israel Tax Authority share data about cross-border taxpayers.

In Practice — How Israel Incorporates Treaty Relief Into Domestic Law: In Israel, the treaty override provision is Section 196 of the Income Tax Ordinance (Pekudat Mas Hachnasa, New Version, 5721-1961), which provides that where a double taxation treaty applies, its provisions take precedence over domestic Israeli tax law to the extent they are more beneficial to the taxpayer. The relevant Israeli authority for treaty claims is the ITA's International Taxation Division (Machleket Misui Beinleumi), based in Jerusalem. For routine withholding rate reduction requests, the relevant ITA unit processes applications under Section 167(b) of the Income Tax Ordinance. The ITA publishes a list of Israel's tax treaties on its website at taxes.gov.il; the UK-Israel treaty is listed and the text is publicly available in both English and Hebrew.

2. Residency and the tie-breaker test

Every treaty benefit depends on a taxpayer being a "resident of" one of the two contracting states. Under the treaty, a person is a resident of a country if they are "liable to tax" there by reason of domicile, residence, place of management, or a similar criterion — not merely because they earned income there.

The UK taxes on the basis of residency (the UK's 183-day plus Statutory Residence Test) and domicile (for remittance-basis non-domiciled individuals, a status that has become less advantageous since the 2025 HMRC reforms). Israel taxes Israeli tax residents on worldwide income under the mercaz chayim (center of life) test embedded in Section 1 of the Income Tax Ordinance, and non-residents only on Israeli-source income.

A person who is both an Israeli tax resident and a UK tax resident — which happens when someone splits time close to the 183-day threshold in each country — can trigger dual residency and the treaty's tie-breaker article. The tie-breaker runs through a cascade:

  1. Where does the person have a permanent home? If only one, that country wins.
  2. If permanent homes in both countries: where is the center of vital interests — social, economic, and personal ties?
  3. If the center of vital interests cannot be determined: where does the person habitually abide?
  4. If habitual abode is also unclear: the two competent authorities (HMRC and the ITA) resolve the question through the mutual agreement procedure.

In practice, a British national who has made aliyah and genuinely lives in Israel will be an Israeli resident and a UK non-resident. Their Israeli income is taxed by Israel; their UK-source income may be taxed by both, with the credit mechanism preventing double taxation.

In Practice — The UK Statutory Residence Test and the Israeli Mercaz Chayim Test Running in Parallel: When a British national makes aliyah, two residence clocks run simultaneously. The UK's Statutory Residence Test (SRT) introduced by the Finance Act 2013 uses a combination of days in the UK, ties to the UK (home, work, family, accommodation), and leaving tests to determine whether the person remains UK-resident. The Israeli test under Section 1 of the Income Tax Ordinance looks at center of life — where the person's family, home, regular workplace, economic interests, and social involvement are centered. A person who arrived in Israel in March 2025 will typically break UK residence after 16 full tax months of non-UK residence (under SRT split-year treatment) and become an Israeli resident immediately on arrival. From that point, Israel taxes them on worldwide income subject to any applicable new-immigrant exemption under Section 14 of the Ordinance. HMRC must be notified of the departure via a P85 form and SA109 supplementary pages in the final UK Self Assessment return. Failure to properly document the exit from UK residence creates the risk of HMRC treating the person as UK-resident — and therefore worldwide-taxable — for years after aliyah.

3. Dividends

Dividends are one of the most commercially significant areas of the treaty for British nationals who own Israeli company shares or hold Israeli equities.

Under Israeli domestic law, dividends paid by an Israeli company to a non-resident shareholder are subject to withholding tax at the source under Section 170(a) of the Income Tax Ordinance. The standard domestic rate is 25% for most non-resident individuals. For non-resident companies holding more than 10% of an Israeli company, the rate is 30% under Section 126(c).

The 2019 Protocol (in force from 1 January 2020) replaced the earlier rates with a cleaner two-tier structure:

  • 5% where the beneficial owner is a company that has held a direct ownership of at least 10% of the share capital of the Israeli company for a continuous period of at least 365 days ending on the date the dividend is declared
  • 15% in all other cases, including individual shareholders and corporate shareholders with a smaller stake or a shorter holding period

Both rates are still a significant improvement on the domestic 25–30% rates that apply without a treaty certificate. UK residents receiving Israeli dividends also pay UK income tax on those dividends, with HMRC allowing a credit for the Israeli withholding actually paid. The credit goes on the SA106 foreign income pages of the UK Self Assessment return.

In Practice — Getting the Treaty Rate Applied at Source: An Israeli company distributing a dividend is legally required by Section 164 of the Income Tax Ordinance to deduct withholding tax at the highest applicable rate unless the shareholder has provided a valid reduced-rate certificate. For a UK resident shareholder, that means obtaining a nikui memas mekorot certificate from the ITA's International Taxation Division before the dividend is declared. The application is filed on ITA Form 2513 and must include a certificate of UK tax residence issued by HMRC (Form RES1 or equivalent). Processing takes 30 to 60 working days from a complete submission. If the dividend has already been paid with 25% withheld, the UK resident must file an Israeli tax return to reclaim the excess — a process that typically takes 12 to 18 months for refunds to arrive. Planning ahead by obtaining the certificate before the distribution saves considerable time and cash-flow cost.

4. Interest

Interest paid from Israel to a UK resident is subject to Israeli withholding under Section 170(a) of the Income Tax Ordinance. The domestic rate for most non-resident individual recipients is 25% on Israeli bank deposit interest, private loan interest, and bond coupon payments (subject to important exemptions — see below).

The 2019 Protocol replaced the old flat 15% rate with three tiers:

  • 0% where the recipient is a government body, central bank, pension scheme exempt from tax in its own country, or where the interest arises on publicly traded bonds listed on a recognised stock exchange
  • 5% where the beneficial owner is a financial institution carrying on genuine banking or insurance business
  • 10% in all other cases — this is the rate that applies to private loans, intercompany financing, and most individual Israeli bank deposit interest

Key domestic exemptions that may beat the treaty rate: Israel's domestic tax law contains significant exemptions for interest paid to registered foreign investors on foreign-currency bank deposits and on shekel deposits where the depositor is not an Israeli resident. Under Section 9(15) of the Income Tax Ordinance, interest on shekel deposits by non-residents in Israeli banks is exempt from Israeli withholding where certain conditions are met. Similarly, interest on Israeli government bonds (Makam, Shahar) held by foreign investors registered in the Bank of Israel's foreign investor register is exempt under Section 9(15a). Where a domestic exemption applies, there is no Israeli withholding at all — which is better than the 15% treaty rate. The ITA publishes guidance on which interest categories qualify for full exemption. Always check whether the domestic exemption applies before investing time in a treaty-rate certificate application.

In Practice — Bank of Israel Foreign Investor Registration for Interest Exemption: A UK-resident investor who wants to benefit from the domestic exemption on Israeli bank deposit interest must register with the Bank of Israel as a foreign investor. Registration is done through an Israeli bank — the investor opens an account, provides a certificate of foreign residency (UK passport plus evidence of non-Israeli residence), and the bank submits the registration to the Bank of Israel. Once registered, the account is designated as a "foreign resident account" (cheshbon toshav chutz), and the bank applies the domestic exemption on interest credited to that account without any further formalities. The Bank of Israel code for the relevant interest category is important: it must be consistent between your registration and the bank's reporting. If the account is misclassified, you may be withheld at 25% even though you qualify for exemption — a common administrative error that requires a direct approach to the bank and, sometimes, an ITA reclaim.

5. Royalties

Royalties paid from Israel to a UK resident — for the use of Israeli patents, trademarks, know-how, copyright, or other intellectual property — are subject to Israeli withholding under Section 170(a) of the Income Tax Ordinance at domestic rates that vary by royalty category:

  • Literary, artistic, and musical copyright royalties: 0% domestic rate under Section 9(1)
  • Patent and know-how royalties paid to a non-resident that qualifies under a tax treaty: treaty rate applies
  • Software license fees paid to a foreign company: typically treated as royalties at 25% domestic rate where no treaty or exemption applies

The 2019 Protocol eliminated Israeli withholding on royalties entirely. Since 1 January 2020, royalties arising in Israel and paid to a UK beneficial owner are taxable only in the UK — Israel has no right to withhold at source. This covers software licence fees, patent royalties, trademark payments, and know-how. The previous 1962 convention had applied a 10% rate, so the change saves UK IP licensors a meaningful cash-flow cost. The ITA still requires a zero-rate certificate (the standard nikui memas mekorot process) before the Israeli payer can remit gross.

British companies licensing IP into Israel should pay particular attention to the interaction between treaty withholding rates and the IIA (Israel Innovation Authority) R&D grant restrictions under the Encouragement of R&D Law 5744-1984. If the Israeli licensee has received IIA grants for the underlying technology, Section 19B of that law restricts how royalties can be structured and paid — separate from the tax treaty rules entirely.

6. Capital gains and Israeli real estate

Capital gains are one of the most important — and most misunderstood — parts of the UK-Israel treaty for British nationals who own Israeli property or hold Israeli shares.

Israeli real estate: The treaty gives Israel the primary right to tax gains on Israeli immovable property (real estate). This means a UK resident who sells an Israeli apartment, office, or plot of land owes Israeli mas shevach (appreciation tax) under the Land Taxation Law 5723-1963, regardless of treaty protection. The domestic rate is 25% of the real, inflation-adjusted gain for non-residents, with no access to the single-apartment exemption that Israeli residents use. UK residents then declare the Israeli property gain on their UK Self Assessment return and claim a credit for the Israeli mas shevach paid — the credit prevents double taxation but does not eliminate the Israeli tax.

Real property companies: The treaty's "real property company" article — which mirrors Article 13(4) of the OECD Model — allows Israel to tax gains that a UK resident makes on the sale of shares in an Israeli company where more than 50% of the company's asset value derives from Israeli real estate. This means a British investor who owns shares in an Israeli real estate holding company and sells them cannot rely on the Section 97(b) exemption for non-residents selling Israeli company shares; Israel retains the right to tax the gain. The threshold and the definition of "real property company" should be confirmed with the current treaty text and ITA guidance, as this area has seen disputes across multiple treaties.

Other Israeli company shares: A UK resident selling shares in an Israeli technology company, for example, where the value does not derive primarily from Israeli real estate, is generally exempt from Israeli capital gains tax under Section 97(b) of the Income Tax Ordinance, provided certain conditions are met (the UK resident does not hold more than 10% of the company). The treaty reinforces this: the gain is taxable only in the UK as the residence country. The ITA may require a Section 68A withholding clearance certificate before closing, even where the exemption applies — this is a procedural requirement, not a substantive tax event.

In Practice — Nikui Mas Before Property Sale Closes: When a non-resident sells Israeli real estate, the purchaser's lawyer is legally required to withhold 7.5% of the purchase price at closing and transfer it to the Israel Land Taxation Authority as a payment on account of mas shevach, under Section 15(a)(1) of the Land Taxation Law. The seller can reduce this withholding if they obtain a pre-sale nikui mas (tax clearance) from the Land Taxation Authority (Misui Mekarkein) specifying a lower payment on account. The nikui mas application is filed with the local Land Taxation Office after the purchase agreement is signed and requires: the purchase agreement, proof of the acquisition cost and date, documentation of any improvements (receipts, permits), and a Power of Attorney if filed through a representative. Processing takes 30 to 90 days depending on the office. The Land Registry (Tabu) will not register the transfer of title without a nikui mas clearance certificate — so this step is both a tax and a conveyancing requirement.

7. Employment income

Employment income is governed by the treaty's dependent personal services article, which allocates taxing rights between the UK and Israel based on where the work is physically performed — not where the employer is based or where the employee is paid.

The basic rule: Employment income from work performed in Israel is taxable in Israel. Employment income from work performed in the UK is taxable in the UK. This applies regardless of where the employee lives.

The 183-day short-term assignment exemption: Under the treaty, a UK resident performing services in Israel for a temporary assignment may remain UK-taxable-only on those earnings if three conditions are all met simultaneously:

  1. The employee is present in Israel for fewer than 183 days in any 12-month period beginning or ending in the relevant Israeli tax year
  2. The salary is paid by, or on behalf of, an employer who is not an Israeli tax resident
  3. The cost of the salary is not borne by a permanent establishment that the employer has in Israel

All three conditions must be satisfied. An employee who stays under 183 days but whose UK employer has an Israeli subsidiary that bears the cost of the salary fails condition 3 — Israel can tax the earnings. British workers on secondment to an Israeli company are generally fully taxable in Israel on their Israeli-period earnings from their first day, because condition 2 fails — the Israeli company is the effective employer.

Israeli income tax runs at progressive rates from 10% to 50% under Sections 121 and 121B of the Income Tax Ordinance, with the 50% rate applying to income above approximately NIS 734,000 per year. Employees who are taxed in Israel must register with the ITA (unless their Israeli employer handles it via payroll deduction) and file an annual return. They receive a credit point system (nekudot zikuy) that reduces final tax; new immigrants receive additional credit points for the first 42 months of Israeli residence.

In Practice — PAYE, National Insurance, and the Bilateral Social Security Gap: Unlike the US-Israel relationship, the UK and Israel do not have a Social Security Totalization Agreement. This means a British national working in Israel and paying Bituach Leumi (Israeli National Insurance) contributions under the National Insurance Law 5754-1994 cannot aggregate Israeli contributions toward their UK State Pension entitlement, and vice versa. UK nationals employed in Israel typically owe Bituach Leumi at the employee rate — roughly 3.5% of gross salary within the standard bracket, with the employer adding approximately 5.5% in employer contributions. The ITA handles Bituach Leumi alongside income tax through the same payroll system — Form 101 (Tofes 101) is the employer's monthly withholding return that covers both income tax and NII. Foreign nationals on B/1 work permits are covered by Israeli NII from their first day of employment; there is no exemption based on paying UK National Insurance simultaneously. Budget for both contributions when structuring cross-border remuneration.

8. Pensions

Pensions are a critical planning issue for British nationals who retire in Israel or who move to Israel and draw a UK pension.

UK State Pension: The treaty generally taxes UK State Pension in the country of residence. A British national who is an Israeli tax resident receives their UK State Pension, and under the treaty, Israel has the primary right to tax it as pension income of a resident. The UK does not withhold tax at source on State Pension payments. The Israeli resident includes it in their Israeli annual tax return and pays tax at their Israeli marginal rate. New immigrants who qualify for the 10-year foreign-income exemption under Section 14(a) of the Income Tax Ordinance may be exempt from Israeli tax on their UK pension for up to 10 years from the date they first became Israeli tax residents — this is one of the most valuable planning opportunities available to British nationals making aliyah.

UK private and occupational pensions: Same treatment as State Pension for residence purposes. Where the pension derives from government employment (NHS, civil service, armed forces, local government), the treaty may contain a "government service" article that keeps the right to tax with the UK — this is a common treaty provision that preserves source-country taxation for government employment pensions regardless of where the recipient lives. Verify whether your pension source triggers the government service article.

UK pension lump sums: A lump-sum withdrawal from a UK pension scheme by an Israeli resident is a more complex question. UK pension providers generally withhold UK income tax on lump sums under PAYE unless the individual has a UK tax code P600 (non-residence). Under the treaty, lump sums from UK pension schemes are generally taxable in Israel as the residence country — but the UK may also withhold at source, requiring a UK tax repayment. This requires coordinated filing with HMRC (a non-resident claim on form R43) and the Israeli ITA (inclusion in the Israeli annual return with a foreign tax credit for any UK tax not fully repaid).

In Practice — The 10-Year New Immigrant Exemption on UK Pension Income: A British national who makes aliyah and becomes an Israeli tax resident qualifies for a 10-year exemption from Israeli income tax on all foreign-source income under Section 14(a) of the Income Tax Ordinance — including their UK State Pension, private pension income, UK rental income, and UK dividends. This exemption runs from the date of first Israeli tax residency. During the exemption period, the new immigrant has no obligation to file an Israeli return for their foreign-source income (though they must still pay Israeli tax on Israeli-source income from day one). Year 10 is the critical planning window: the moment the exemption expires, all foreign income becomes Israeli-taxable. Investments, pension drawdown strategies, and capital gains events should all be reviewed in years 8 and 9 of the exemption. UK citizens who made aliyah under the Law of Return and are also new immigrants under the Absorption of Immigrants Law receive the same 10-year exemption as any other new immigrant. The exemption does not reduce UK tax on UK-source income — HMRC still taxes UK residents normally, and non-UK-resident new immigrants in Israel receive the same credit for UK tax through the treaty mechanism. The key is that during the exemption window, both UK and Israeli tax may be owed on UK-source income, but the treaty credit prevents double taxation; and from the Israeli side, only Israeli-source income is taxed.

9. How to claim treaty benefits in Israel

Treaty benefits in Israel are never automatic. The Israeli payer — whether a company paying dividends, a bank paying interest, or a business paying royalties — withholds at the domestic rate unless the recipient has obtained a formal reduced-rate certificate from the ITA.

Step 1 — Obtain a UK tax residence certificate from HMRC. A standard letter confirming UK tax residence under the UK-Israel treaty is available from HMRC's Certificate of Residence service — Form RES1 for individuals. The certificate must specify the relevant tax treaty between the UK and Israel and confirm that the applicant is resident in the UK for treaty purposes. Processing at HMRC takes four to eight weeks.

Step 2 — Complete ITA Form 2513. This is the standard application for a reduced withholding tax rate certificate (nikui memas mekorot) under Section 167(b) of the Income Tax Ordinance. The form requires identification details, the Israeli payer's details, the type and estimated amount of income, and the applicable treaty article. It must be submitted in Hebrew or with a certified Hebrew translation.

Step 3 — Submit to the ITA International Taxation Division. Applications go to the International Taxation Division of the ITA, based in Jerusalem (Machleket Misui Beinleumi). The Division processes applications by income type and payer. For recurring income streams (regular dividends from an Israeli holding), a single certificate valid for 12 to 24 months is typically issued. For one-time transactions (a single interest payment), a transaction-specific certificate is used.

Step 4 — Provide the certificate to the Israeli payer before payment. The certificate must be in the hands of the payer before the income is paid or credited. The payer then withholds at the rate shown on the certificate rather than the domestic rate. The payer reports to the ITA on an annual withholding statement.

If you missed the certificate: Where tax has already been withheld at the domestic rate and you should have received the lower treaty rate, you can recover the excess by filing an Israeli tax return for the relevant year on Form 1301 (non-residents) or through the ITA's refund mechanism. Refunds take 12 to 18 months and are paid in shekels; exchange rate risk sits with the taxpayer during the waiting period.

In Practice — Submitting Form 2513 from Outside Israel: A UK resident applying for an ITA reduced-rate certificate does not need to be physically present in Israel. The application can be submitted by post or email to the International Taxation Division, or through an Israeli licensed tax adviser (roa cheshbon or arokh din) with a Power of Attorney. The ITA's International Taxation Division postal address is HaKirya, Jerusalem. For digital submissions, the ITA's e-services portal (shaam.gov.il) allows authorised representatives to submit on behalf of non-residents, but the representative must first register as an authorised agent. Allow 60 to 90 days for the full process from HMRC certificate to ITA certificate in hand — which means planning the first application well before the first payment date. For British shareholders of Israeli startups preparing for a dividend ahead of a liquidity event, starting this process six months before the anticipated distribution date is not excessive.

10. UK residents with Israeli income: the UK foreign tax credit

A UK resident who receives Israeli-source income — rental income from an Israeli apartment, dividends from an Israeli company, or a salary earned during a work trip to Israel — must report that income on their UK Self Assessment return and is subject to UK income tax on it. The UK-Israel treaty prevents double taxation through the credit method: the UK allows a credit for Israeli tax paid on the same income against the UK tax due on that income.

How the credit works: The foreign tax credit (FTC) is claimed on the SA106 foreign income supplementary pages. You report the gross Israeli income in the relevant box (employment, dividends, interest, rental), include the foreign tax credit in the tax already paid column, and HMRC calculates the net UK tax after the credit. The credit cannot exceed the UK tax on that specific income — if Israeli withholding was 15% on a dividend and your UK rate on the same dividend is 8.75% (basic rate UK dividend tax), the credit is capped at 8.75% and the excess Israeli withholding cannot be offset against other UK tax.

Rental income from Israeli property: UK residents must report Israeli rental income on their SA106. Israel taxes non-resident landlords under Section 122 of the Income Tax Ordinance at a flat 15% on gross rental receipts (no deductions, but a low flat rate), or at marginal income tax rates on net income after expenses. The choice between the two Israeli tracks is made by the landlord on their Israeli non-resident rental return. The lower of the Israeli tax paid and the UK tax on the same gross rental income is the credit available. UK landlords of Israeli property must file both an Israeli non-resident rental return with the ITA and the relevant SA106 pages with HMRC for each tax year rental income is received.

Record-keeping: UK residents claiming FTC for Israeli taxes need to keep: Israeli bank statements showing withholding deducted; Israeli tax assessment notices (shuma); payment receipts from the ITA; and, for property, the nikui mas certificate. HMRC may request evidence of Israeli tax paid when processing refund or credit claims, and the relevant limitation period for HMRC enquiries is typically four years from the filing deadline.

In Practice — The Section 122 Election for UK-Resident Israeli Landlords: A UK-resident landlord with an Israeli apartment has a meaningful choice to make each year: pay Israeli tax at 15% on gross rental receipts under Section 122 of the Income Tax Ordinance (simple, no deductions required), or pay at marginal Israeli income tax rates (10% to 50%) on net income after allowable expenses. For a Tel Aviv apartment generating NIS 8,000 per month in rent (NIS 96,000 annually), with NIS 20,000 per year in management fees, arnona, and maintenance expenses, the comparison is: 15% on NIS 96,000 = NIS 14,400 Israeli tax under the gross basis, versus tax at the marginal rate on NIS 76,000 net income under the net basis. For a UK resident whose Israeli income pushes them into the 20% Israeli band, the gross basis at 15% is almost always preferable. The election must be made on the annual Israeli non-resident rental return (Form 1301), filed by April 30 of the following year. Filing the election correctly also sets the Israeli tax paid figure that enters the UK Self Assessment foreign tax credit calculation.