Overview
Israel has no inheritance tax (abolished in 1981) and no gift tax. However, estate planning remains important for: minimizing capital gains tax when heirs sell inherited assets, managing the 'stepping into shoes' principle, structuring assets for efficient family transfer, and protecting assets from creditors. The key goal is to transfer wealth while minimizing future tax events.
Core Estate Planning Principles
- There is no inheritance tax in Israel – inheritance itself is tax-free
- The heir inherits the deceased's cost basis and purchase date (stepping into shoes)
- Gifts to relatives are tax-free (capital gains deferred, purchase tax at 1/3 for real estate)
- Trusts can be used for asset protection and controlled wealth transfer
- Family companies can facilitate gradual ownership transfer
- Life insurance proceeds are tax-exempt and bypass the estate
- Plan for both Israeli and foreign tax obligations (for assets abroad)
Timing Considerations
The timing of asset transfers matters. Gifting appreciated assets during life defers the capital gain (the recipient inherits the basis). But the recipient will pay more tax when they eventually sell. If the asset is expected to be held long-term, the deferral is beneficial. If the recipient plans to sell soon, it may be better for the current owner to sell, pay the tax, and gift the cash (which is fully tax-free).
Example – Gift vs. Inheritance
Parent owns an apartment purchased for ₪500,000, now worth ₪2,000,000.
Option 1 – Gift now: No betterment tax (gift to relative). Child inherits ₪500,000 basis. Purchase tax: 1/3 of normal rate.
Option 2 – Leave as inheritance: No tax at inheritance. Child inherits ₪500,000 basis (same as gift).
Option 3 – Sell now and gift cash: Parent pays betterment tax on ₪1,500,000 gain. Remaining cash gifted tax-free.
If this is the parent's only apartment (exempt from betterment tax), Option 3 may be best – the parent uses the single-apartment exemption, and the child receives cash with no future tax burden.
בסיס חוקי
- Section 4 – Real Estate Taxation Law (Inheritance exemption)
- Section 97(a)(5) – Gift to relative exemption
Important Note: The information on this website is for general informational purposes only and does not constitute professional tax advice. Consult a qualified tax advisor before making financial decisions.