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Do I owe Israeli income tax on an inheritance I receive from a foreign relative?

No — Israel abolished its inheritance tax in 1981, and receiving an inheritance is not treated as taxable income under the Income Tax Ordinance [New Version] 5721-1961. Whether you are a resident or non-resident, the inheritance itself is not a taxable event in Israel. However, income or gains you derive from inherited assets after they pass to you — such as rental income from an inherited property or capital gains when you sell inherited shares — are subject to Israeli tax under the normal rules that apply to those asset types.

The Inheritance Tax Law 5709-1949 was effectively repealed with effect from January 1981, and Israel has had no estate or inheritance tax since then. Receiving an inheritance — whether the deceased was Israeli, foreign, or a diaspora family member — is simply not a taxable event in Israel. This applies regardless of what you receive: cash, bank account funds, real property, securities, or business interests. It equally applies whether the inheritance came through a valid will (tzavaah) or through intestacy under the Succession Law 5725-1965. If you are a non-resident of Israel and receive a foreign inheritance consisting entirely of foreign assets, there is no Israeli income tax connection whatsoever: Israel taxes non-residents only on Israeli-source income and does not reach foreign-to-foreign inheritances.

The tax exposure begins when you start deriving income or realising gains from the inherited assets. An inherited Israeli property will generate rental income taxable in Israel, and if you later sell it, capital gains tax (mas shevach) applies under the Land Taxation Law 5723-1963 — with cost basis calculated back to the original acquisition by the deceased, which can significantly affect the taxable gain. Inherited foreign securities will be taxable on dividends (if you are an Israeli tax resident) and on any capital gain when sold. New immigrants (Olim Hadashim) and long-term returning residents (Toshavim Hozrim Vatikkim) who receive a foreign inheritance during their 10-year Israeli tax exemption period can generally receive income from foreign inherited assets free of Israeli tax during that window — a substantial benefit worth planning around. Always consult a tax attorney before selling or liquidating inherited Israeli assets, as the method of calculating the cost basis on inherited property is specific to Israeli law and can produce unexpected results.

⚖ In Practice
  • Governing law: Income Tax Ordinance [New Version] 5721-1961 (inheritance not listed as taxable income); Inheritance Tax Law 5709-1949 (repealed 1981); Land Taxation Law 5723-1963 (property gain on sale)
  • Competent authority: Israel Tax Authority (Rashut HaMisim) — no filing required in Israel solely by reason of receiving an inheritance
  • On inherited Israeli property: capital gains tax applies when you sell; linear exemption calculation is available if the property was acquired before January 2014 — verify dates carefully with a tax attorney
  • Oleh / Toshav Hozer Vatik exemption: income and gains from foreign inherited assets may be entirely tax-free in Israel for up to 10 years from the date of Aliyah or qualifying return
  • Reporting: if you are an Israeli tax resident and inherit foreign assets, disclosure to the Israel Tax Authority is required in your annual return; non-disclosure carries penalties

From the full guide: Inheritance Tax in Israel: What Heirs Need to Know

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Get a Free Consultation with Adv. Eli ShimonyPrepared under the direction of Adv. Eli Shimony, Eli Shimony Law Office · Editorial policy

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