Transferring an Apartment for Free in Israel

TRANSFERRING AN APARTMENT FOR FREE IN ISRAEL
Transferring an apartment for free (as a gift between relatives) is considered one of those mysterious legal issues that, although we were all supposed to be aware of, in practice, very few know what it is about. And between us, it’s a pity, but it’s also quite understandable because behind those four seemingly simple words - moving an apartment for nothing, hides a rather fascinating matter, which in some cases (and with the right professional guidance, of course) may save you quite a bit of money and heartache.
WHAT IS AN APARTMENT TRANSFER WITHOUT CONSIDERATION?
The transfer of an apartment without consideration refers to the transfer of assets between members of a nuclear family, without any consideration being given to them in respect of the transfer of the rights in the property. This is sometimes referred to as a "gift deal". This can explain the official names of the parties involved in this type of transaction - the recipient of the gift (transferred) and the giver of the gift (transferor).
Based on the Real Estate Taxation (Appreciation and Acquisition) Law, 5733-1963, and the Real Estate Taxation (Appreciation and Acquisition) Regulations (Acquisition Tax), 5734-1974 - the transfer of an apartment without consideration is also defined as a real estate transaction. However, in the event of certain conditions, a transaction of this type may be granted an exemption from the payment of praise tax and even a partial exemption from the payment of purchase tax (which is about one-third of the purchase tax that the recipient was supposed to pay).
WHAT IS UNIQUE ABOUT THIS TYPE OF TRANSACTION?
Another uniqueness of transferring an apartment without consideration over other real estate transactions is embodied in the fact that it is a transaction in which there is an obligation to only one of the two parties involved. Thus, in contrast to the ordinary sale agreement of transferring the rights in real estate (purchase of property/sale of the property), in which each party undertakes its part in the agreement (the seller undertakes to transfer the property rights at a certain date, while the buyer without consideration, only the giver of the gift is obligated to transfer his winnings in the property). Yet, because the gift transaction entails a contract the law of Israeli contracts applies.
TRANSFERRING AN APARTMENT WITHOUT CONSIDERATION: A POSSIBLE TAX SHELTER?
According to the law, the rights granted without consideration in real estate (transfer as a gift) can be transferred from an individual to a relative with an exemption from praise tax and partial exemption (as mentioned earlier - about a third of the purchase tax the recipient was required to pay). At the time of transfer of rights in the property. Since transferring property in this way to a relative may serve as a tax haven for some people (transferring property without consideration for sale at a later stage while receiving an exemption from paying praise tax on the sale), the law defined a number of cooling-off periods, during which a person cannot receive the gift and have tax exemptions.
It does not matter what kind of relationship exists between the giver of the property and the recipient. In addition, a cooling-off period of four years will apply from the date the receipt got the property until the recipient can sell it. In cases where the recipient of the property has resided there permanently, the cooling-off period is shortened to three years from the date which the recipient of the gift began to live in it on a regular basis.
"CLOSE" IS A RELATIVE MATTER
It is important to note that in the matter of taxation, there are significant differences between the various definitions of close. So, “close" to the matter of capital gains tax is not necessarily "close" when it comes to purchase tax. It is important to recognize these differences:
"close" according to tax definitions may be one of these - spouse, parents, grandparents, descendant (also grandson), a descendant of the spouse and spouses of one of these, sister or brother and their spouses, and a union beyond the control of the giver of the gift.
In contrast, a "relative" by definition for the purposes of purchase tax may be a spouse (including spouses during the six months preceding the interest), parents, offspring, spouse of the offspring, sister, or brother.
So, it can be said, for example, that according to the definitions of the praise tax, the brother-in-law, for example, is considered "close", while according to the definitions of the purchase tax - he is not.
As can be understood, moving an apartment for free can turn out to be a complex business. Therefore, it is very important to consult a trusted real estate lawyer before making such a deal.
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