Donation
Donation
A gift of real estate is the act of transferring the rights to the property to a third party without receiving financial compensation. An owner can ‘give’ his property during his lifetime or ‘bequeath’ it after his death.
The tax regime for this type of transaction is very liberal in Israel. There is no real inheritance tax to pay and the tax benefits are very advantageous. However, there are fees, certain steps to follow and rules that must be complied with.
Transferring ownership rights to a third party is exempt from capital gains tax when it is a close relative. As for the acquisition tax, it will be reduced for relatives.
Transfer without compensation
Any owner of a property may decide to donate it to a third party. Usually, these are the owner’s relatives, but not in all cases. This is called a donation or a transfer without consideration. Consideration may be financial, favors, servitude or even goods. It is possible to transfer all rights to a property or only part of them.
When it comes to relatives, they are exempt from capital gains tax. However, they must pay the acquisition tax within 60 days of the transaction. The good news is that this tax is reduced to one third of the amount on the value of the property. In the case of a donation between spouses for their common home, the acquisition tax is also exempt. If it is another real estate property, the spouse will have to pay like the other relatives.
The following persons are considered close:
- The spouse
- The parents
- Grand parents
- The children
- Stepchildren
- Children's spouses
- The grandchildren
- Spouse's grandchildren
- The grandchildren's spouses
- More distant direct descendants (great-grandchild etc.)
- The brothers and their wives
- Sisters and their spouses
However, it should be noted that the definition of the word close differs depending on the acquisition tax and the capital gains tax. For the acquisition tax, this includes spouse, parent, descendant, spouse of a descendant, brother and sister. For the capital gains tax, this includes spouse, parent, parent of a parent, descendant, descendant of a spouse, spouses of these, brother, sister and their spouses.
Benefits of donating to loved ones
Are there any advantages to donating real estate? Yes, and the biggest one is that it often helps avoid conflicts during an inheritance. When an owner transfers his rights to a property to a third party, the donation is immediately registered in the land registry (taboo). This is what creates a definitive, irreversible state of affairs. It is a good way to anticipate problems between heirs during the inheritance.
It is clear that the fact of having made a will should define the successors unequivocally. But a will can always be modified, a donation can no longer be modified, it is an established fact.
It is also an advantage in the case of children from a previous relationship. In order to protect their rights it is possible to make a donation. Another way is to draw up a contract of separation of property. However a court can invalidate this contract, it cannot invalidate a donation.
Tax benefits of a donation
There are also tax advantages to donations. For example, to reduce the acquisition tax for owners wishing to purchase a second property. This means that by donating their first property, they will pay less acquisition tax for their second property. The same goes for capital gains tax. This is exempt for the purchase of a first property. So by donating one of their properties, they will be able to enjoy the exemption when they sell their property.
Path to follow
In the case of a donation, you should always take a notary or a lawyer with you. This guarantees the total legality of the transaction. He will also be a witness for both parties who signed the property transfer agreement. As with any other transaction, there are documents to be collected and signed by both parties.
Documents to sign:
- A donation agreement (transfer without consideration)
- Documents relating to the property and the transaction
- The “noten matana” (gift) declaration that the owner signs
- The “mekabel matana” (receive as a gift) declaration that the beneficiary signs
- Details on the future of the donation in the event of the donor’s death
The donation declaration to be transferred to the tax authorities and the land registry
Donation to a person outside of relatives
It is possible to make a donation to a person who is not a close relative of the owner. In this case, the donor and the beneficiary will have to pay all the taxes on the transfer. Once the transaction is registered in the land registry, it becomes irreversible.
In the case of a transfer of property to a person outside the family, it is absolutely necessary to have a lawyer with you. This will prove the good faith of the donor, which is important. The authorities do everything to prevent fictitious transfers that are made with the aim of wrongly benefiting from tax advantages.
