Taxation on the Purchase of Land: Purchase Tax, Capital Gains Tax and the Betterment Levy

A land transaction involves at least three types of charge worth knowing about, and they differ from one another in who pays, which body collects them and when they apply. Confusion between them is very common, particularly between capital gains tax and the betterment levy.

Purchase Tax (Mas Rechisha), Paid by the Buyer

The purchase of land or a plot that is not a residential apartment carries purchase tax at a flat rate of 6% of the transaction value. This point confuses many people: the graduated tax brackets familiar to the public apply to residential apartments only, not to land. There is an important practical exception: if, at the time of purchase, a plan applies to the land permitting the construction of at least one residential unit, and a building permit for at least one unit is obtained within 24 months of the purchase date, one sixth of the tax can be refunded, bringing the effective rate down to 5%. (As of September 2026)

Capital Gains Tax (Mas Shevach), Paid by the Seller

Capital gains tax is a national tax imposed on the seller and calculated on the increase in the value of the asset from the date it was acquired until the date of sale. It is important to know that where a developer holds the land as business inventory, the charge is not capital gains tax but income tax under the Income Tax Ordinance, a meaningful distinction for anyone operating in land as a business rather than in a one-off private transaction.

The Betterment Levy (Hetel Hashbacha), Paid to the Municipality and Not to the State

The betterment levy is an entirely separate charge, governed by the Third Addendum to the Planning and Building Law and paid to the local planning and building committee rather than to the Israel Tax Authority. It applies when the value of the land rises as a result of a planning event: approval of a plan, the grant of a relief, or permission for a non-conforming use. Its rate is up to half of the increase in value, that is up to 50%.

Who Owes the Levy, and When It Is Paid

This is where the most common confusion lies. Liability for the levy arises at the time of the betterment event, meaning the date the plan was approved, and falls on whoever was the owner or long-term lessee on that date. Only the time of payment is deferred to the date on which the rights are realized. In an ordinary sale transaction, where the sale itself is the realization event, the seller is therefore liable for all the betterment that occurred during their period of ownership, and the buyer becomes liable only for betterment approved after the purchase. In practice, the local committee's confirmation that the levy has been paid is required in order to register the transfer of rights at the Land Registry.

You Can Challenge the Levy Assessment

A betterment levy assessment is not carved in stone. Section 14 of the Third Addendum allows the person charged to submit an alternative assessment from an appraiser of their own choosing, or to apply to a decisive appraiser, within a fixed period from the day the assessment was received. In quite a few cases the gap between assessments is substantial, so it is worth examining the assessment rather than assuming it is final.

Exemptions and Reliefs

The betterment levy carries express exemptions under section 19 of the Third Addendum, among them an exemption for the construction or enlargement of a residential apartment of up to 140 sq m subject to certain conditions, as well as reduction arrangements in urban renewal complexes. Purchase tax and capital gains tax may also carry exemptions or reliefs in certain circumstances, for example on transfers between relatives. All of these depend heavily on the specific facts of the transaction, so it is wrong to assume entitlement to an exemption in advance. This is precisely one of the checks worth carrying out with a lawyer before you settle on final pricing.