Why Wealth Transfer Triggers Tax
Every transfer of significant assets between family members in Israel — whether as a gift, a sale at below-market price, or an inheritance — has tax implications. Understanding which transfers are tax-free, which are taxed, and how to structure transactions to minimise the burden legally is the foundation of intergenerational wealth planning.
Tax-Efficient Transfer Methods
- Bequest through a will: Inheriting assets is not a taxable event for the heir at the time of receipt. Capital gains on inherited assets are calculated from the original cost, not the inheritance date.
- Gift of an apartment to a close relative: Qualifying gifts between close relatives may receive reduced purchase tax (one-third rate) — but capital gains deferred tax passes to the recipient.
- Lifetime transfer with retained right: Transferring an apartment while retaining a registered right of residence protects the transferor while shifting the asset out of the estate.
- Trust structure: Assets within a properly structured trust may be protected from certain taxes — but trust taxation is complex and must be professionally managed.
Is there inheritance tax in Israel?
No — Israel abolished inheritance tax in 1981 and does not currently impose a general inheritance or estate tax. Heirs receive assets without paying a tax at the moment of inheritance. However, this does not mean inheritance is tax-free in all respects: selling an inherited apartment may trigger capital gains tax, and certain transactions structured as "gifts" may be reclassified and taxed. Estate planning that assumes zero tax exposure because there is no inheritance tax can still result in significant tax liabilities.
