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<\/p>\n;When beginning a real-estate transaction in Israel, whether for an apartment, residential home, or land, many new terms come up that are unfamiliar to the layperson. One of these terms is betterment tax. What is betterment tax, who is required to pay it, how much money must be paid, when must it be paid, and, most importantly\u2014how may you receive a betterment tax exemption or a discount?<\/p>\n
Our firm specializes in the purchase and sale of real-estate in Israel. This article explains all you need to know about betterment tax, how much money must be paid, and how to request an exemption from the tax or file an appeal against it.<\/p>\n
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Betterment taxes are collected by the local municipalities for the land within the municipality. The tax is officially imposed by the local committee operating within the municipality, based on the rise in the value of the land that is included in the construction plan.<\/p>\n
For example, if you own a 100-square-meter apartment and the local committee gives its approval for you to build a 100-square-meter addition to the apartment, the flat will now be worth much more, since, after the addition, you will have a 200-square-meter apartment and its worth will be doubled, at the least.<\/p>\n
The same is true for a condominium that receives the committee\u2019s approval to add another floor, and even for an empty lot on which the committee has approved the construction of a new condominium, which, consequently, becomes worth much more than the empty lot.<\/p>\n
The difference between the value of the property before receiving approval for the future plans and between its value after the approval is the measure for the amount of betterment tax that will be imposed by the local committee. The amount of tax imposed will be half this difference. That is, half of the betterment caused by the approval of the construction plan by the committee belongs to the committee.<\/p>\n
Note that this is not the same as the capital gains tax that is imposed by the Tax Authority. Capital gains taxes<\/u><\/span><\/a> are paid to the Tax Authority for gains from the sale of an apartment at a higher price than the price for which it was originally bought. In contrast, betterment taxes are paid to the local authorities for their approval of the construction plan.<\/p>\n The tax, in effect, makes the local municipality a partner of the entrepreneur in the construction of the property. The payment of this tax is for the development of the property and other expenses of the local municipality.<\/span><\/p>\n Betterment taxes must be paid by the person who, as of the date of approval of the plan by the local committee, is the owner of the property. That is, if you buy property with construction rights that were approved by the local committee and that require payment of betterment taxes, the person who is obliged to pay the taxes is the seller, not the buyer, even if the seller did not make use of the construction rights. However, it is usually arranged in the <\/span>sale contract<\/u><\/span><\/a> that the buyer will be the one to pay the taxes, the amount of which will be subtracted from the price of the property.<\/span><\/p>\n In contrast, the due date of the tax payment may be at the time when the rights are exercised. That is, if you receive approval to add a balcony that raises the value of the property by ~100,000 ILS, you will be required to pay betterment taxes in the amount of 50,000 ILS; however, you will not be required to pay in January<\/span>\u2014<\/span><\/span>rather, you will be required to pay as soon as you decide to start building the balcony, even if several months have passed.<\/span><\/p>\n In summary, the due date for paying betterment taxes may be:<\/span><\/p>\n when receiving approval for the construction, for building not in accordance with the acceptable regulations, or for changing the designated use of the land;<\/span><\/p>\n<\/li>\n when actually beginning the construction of the add-on after receiving approval from the local committee;<\/span><\/p>\n<\/li>\n when selling the property, in which case the tax must be paid even if the construction rights were not exercised.<\/span><\/p>\n<\/li>\n<\/ol>\n It is important to note that, until the betterment taxes are paid, no registration change may be made such as transferring ownership or receiving a construction approval.<\/span><\/p>\n As stated above, betterment taxes must be paid for any change in the construction plans that raises the value of the property, subject to the change being approved by the local committee. Such changes may take place in urban building plans (called <\/span>Taba<\/u><\/i><\/span><\/a> in Israel); when adding to an existing building or constructing a new one; when obtaining approval to build not in accordance with the normal regulations, such as adding a residential unit or expanding an existing apartment; or when obtaining approval to change the designated use of the land from industrial use to residential use, which considerably raises the value of the land.<\/span><\/p>\n It is important to distinguish between changes in the actual designation of the land and between changes from the permits that do not deviate from the original designation. That is, if the approved change does not match the original designation of the land as stated in the plans, betterment taxes apply. However, if the change remains within the original designation, there is no need to pay betterment taxes since the taxes that apply to the original plan were already paid and no further payment is required.<\/span><\/p>\n After the construction plan that requires betterment taxes is approved, the local municipality usually sends a real-estate appraiser to examine the increase in the value of the apartment or land. The appraiser evaluates the bettered property and, based on the new value, determines how much betterment tax should be paid by the owner. The appraiser then publishes this decision in a municipal tax-assessment table, alongside the details of the property and its betterment.<\/span><\/p>\n The local authority may sometimes postpone the assessment until after the construction rights are executed. That is, if the local authority has not published a tax-assessment table with the details of the properties on which it has imposed betterment taxes, then you may assume that the assessment was postponed until after the construction actually begins.<\/span><\/p>\n As stated above, the real-estate appraiser is the one who calculates the amount of tax. The tax is calculated in the following manner: if an addition of 50 square meters was approved, and every meter in the area of the property is sold at 10,000 ILS, then the betterment is worth 500,000 ILS.<\/span><\/p>\n However, this isn\u2019t the real value of the betterment, since, to reach this value, the construction costs must be considered, as well. Therefore, the appraiser must also evaluate the cost of the construction and subtract this cost from the betterment value. In the example above, if the cost of the construction is 200,000 ILS, then the actual betterment value is only 300,000 ILS, which means that the betterment tax will be 50% of this<\/span>\u2014<\/span><\/span>that is, 150,000 ILS.<\/span><\/p>\n It should be noted that, if the consumer price index or the construction input index has risen before the construction plan was approved, the betterment tax will be calculated according to the updated index even though this may lead to a significant increase in the tax.<\/span><\/p>\n If the property owner believes that the betterment tax is too high, they have the right to file an appeal with the appeal committee.<\/span><\/p>\n The Planning and Building Law lists the cases in which there is no requirement to pay betterment taxes. To be exempt from this payment, your real-estate appraiser<\/u><\/span><\/a> must file a request on your behalf, and the appraiser also has the right to file an appeal on your behalf against the amount of tax that was imposed on you.<\/p>\n The law stipulates that, in the following cases, you may be exempt from paying betterment taxes:<\/p>\n if the construction plan was approved for residential property in a rehabilitation neighborhood;<\/p>\n<\/li>\n if the construction plan was approved for residential property in an official town (yishuv mukhraz<\/i> in Hebrew, as defined in the Economic Efficiency Law);<\/p>\n<\/li>\n if the property is a residential apartment that was expanded, in which case the first 140 square meters are exempt from betterment taxes;<\/p>\n<\/li>\n an expansion that was built for accessibility purposes;<\/p>\n<\/li>\n if the construction plan was approved based on the national outline plan<\/u><\/span><\/a> #38 (national plan for strengthening buildings against earthquakes), in which case betterment taxes<\/u><\/span><\/a> do not apply;<\/p>\n<\/li>\n public property such as educational institutions, charities, health care facilities, etc.;<\/p>\n<\/li>\n an expansion that was built for a public passageway.<\/p>\n<\/li>\n<\/ol>\n In summary:<\/b><\/p>\n Betterment taxation is a broad and complex field. If you need advice in this area or in other areas related to real estate, contact our law firm, \u05d3\u05e7\u05e8, \u05e4\u05e7\u05e1, \u05dc\u05d5\u05d9, with branches in Jerusalem and Tel Aviv. We specialize in Israeli civil law. If you have any further questions, I and my team will be happy to help. Contact us:<\/p>\n [author_and_contact_info]<\/p>\n","protected":false},"excerpt":{"rendered":" ;When beginning a real-estate transaction in Israel, whether for an apartment, residential home, or land, many new terms come up that are unfamiliar to the layperson. One of these terms is betterment tax. What is betterment tax, who is required to pay it, how much money must be paid, when must it be paid, and,…<\/p>\n","protected":false},"author":110,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[150],"tags":[],"class_list":["post-92042","post","type-post","status-publish","format-standard","hentry","category-real-estate-property-law-en"],"acf":[],"yoast_head":"\nWHO IS REQUIRED TO PAY BETTERMENT TAXES AND WHEN DO THEY BECOME OBLIGED TO DO SO?<\/b><\/span><\/h4>\n
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<\/p>\nWHICH CASES REQUIRE THE PAYMENT OF BETTERMENT TAXES?<\/b><\/span><\/h4>\n
WHO DECIDES HOW MUCH BETTERMENT TAX MUST BE PAID?<\/b><\/span><\/h4>\n
HOW IS THE AMOUNT OF BETTERMENT TAXES CALCULATED?<\/b><\/span><\/h4>\n
WHO IS EXEMPT FROM PAYING BETTERMENT TAXES?<\/b><\/span><\/h4>\n
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