Giving property during one's lifetime, just like bequeathing it at death, amounts to transferring ownership without consideration. In Israel, this type of transaction is completely free. While the question may seem curious, it is sometimes much more fiscally advantageous to operate a sale between parents and children rather than a simple gift.
1. Real Estate Gifts in Israel: A Tricky Tax Deferral?
When there is a gift, according to Israeli law, it is a transfer of apartment without consideration. However, beware of the particular case where parents retain usufruct: this can be requalified and seen as consideration, transforming the operation into a sale and not a gift.
If it's a classic gift between parents and children:
For the children: They acquire the property and pay the acquisition tax, but this benefits from a 2/3 reduction (they therefore only pay one third).
For the parents (donors): They transfer their property without having to pay capital gains tax immediately relative to the purchase value.
Beware of the trap: This capital gain is not erased, it is simply deferred to the day when the children sell the property.
Concrete example: If the parents bought a property in 2015 for a value of 3 million shekels, and gave it to their children in 2020 when it was worth 4 million, the capital gains tax was not paid. If the children resell the property in 2025 for a value of 5 million shekels, they will have to pay tax on the entire 2 million in capital gains accumulated since 2015.
2. The Case of Family Sale: Resetting the Counter to Zero
If the parents decide, rather than consenting to a gift, to sell the property to their children (transfer with consideration), the tax rules change radically. The parents pay capital gains tax according to their tax status at the precise moment of the rights transfer.
Taking our example again: the parents pay tax on the million profit in 2020. The major advantage is that the capital gains counter is reset to zero for the children. The latter will then only pay future tax on their own million profit made between 2020 and 2025.
In return for this strategy, for the administration to validate the sale, the children must pay the full acquisition tax, without benefiting from the reduced third.
3. The Tax Advantage Trick: Why Choose the Sale?
Each family and wealth situation is unique. However, this sale technique proves particularly interesting when:
The parents are Israeli residents.
It is their only real estate property.
The accumulated capital gain is very significant.
In this configuration, the parents can sell the property to their children while being totally exempt from capital gains tax.
This arrangement avoids heavy future taxation: if the children live abroad, they would not benefit from this exemption upon their parents' death and would pay very high capital gains tax, especially since the real estate trend in the long term is structurally upward. This therefore allows current tax advantages to be realized. Moreover, for properties acquired before 2014, this allows benefiting from thelinear partial exemption which is being abolished.
4. Coordination with French Law and International Succession
This tax optimization in Israel can perfectly be combined with a French-style gift with retained usufruct for the parents.
This dual approach is ideal in the case where the children live in France, provided that the family's tax and conventional configuration allows it.
Conclusion: Essential Estate Planning
Successions are planned in advance, both fiscally and civilly. When a patrimony presents an international aspect (France - Israel), this planning becomes even more essential to protect your loved ones and optimize the transmission of your assets.
