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Is transferring an Israeli apartment to a spouse under a divorce settlement taxable?

No. Section 4A of the Land Taxation (Appreciation and Purchase) Law 5723-1963 provides that a transfer of rights in real property made under a divorce ruling is not a sale for the purposes of that Law. Neither betterment tax nor purchase tax is charged, whether the property passes between the spouses or from a spouse to their child under the same ruling. The relief is a deferral rather than a forgiveness: the receiving spouse takes over the original acquisition date and cost, so the accumulated gain is taxed when the property is eventually sold to a third party.

The Land Taxation Law charges tax on a sale of rights in Israeli real property, with betterment tax (mas shevach) falling on the seller and purchase tax (mas rechisha) on the buyer. Section 4A takes divorce transfers outside that definition altogether, which is a cleaner result than an exemption: because no sale occurred, no exemption has been consumed and the parties keep whatever residential exemptions they held before. The condition attached to the relief is that the transfer is made under the divorce ruling, meaning a judgment of the Family Court or the Rabbinical Court, including a settlement agreement to which the court has given the force of a judgment.

Sequence is what usually goes wrong. Couples negotiate, sign a private agreement, and register the transfer before the court has confirmed anything, at which point the assessing officer can treat the transaction as an ordinary transfer between related parties valued at market price. Confirm the agreement first, then file the Section 4A notice with the Real Estate Taxation Office, then register at the Land Registry. Where a mortgage remains on the property the bank's written consent is needed to release one borrower, and that often takes longer than the tax step. Plan the eventual exit as well, because the receiving spouse inherits the historic purchase date and will face the full betterment tax calculation on any later sale.

⚖ In Practice
  • Governing law: Section 4A, Land Taxation (Appreciation and Purchase) Law 5723-1963
  • Competent authority: Israel Tax Authority Real Estate Taxation Office (Misui Mekarke'in) for the relief, and the Land Registry (Tabu) for registration of the transfer
  • Tax payable on the transfer: none, meaning no betterment tax on the transferring spouse and no purchase tax on the receiving spouse
  • Cost basis: the receiving spouse assumes the transferor's original purchase date and purchase price, so the deferred gain surfaces on the next sale
  • Sequence: the settlement must be approved and given the force of a judgment by the Family Court or Rabbinical Court before the transfer is carried out
  • Related steps: obtain the mortgage bank's written consent to release the departing borrower, then lodge the transfer with the tax clearance at the Land Registry

From the full guide: Betterment Tax (Mas Shevach) on Israeli Real Estate: Complete Guide

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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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