Currently, there is no inheritance tax in Israel, whether it is an inheritance from Israel or an inheritance from abroad. It is possible that this will change in the future, however, since a tax of this nature does exist in most OECD countries and as a result of Israel’s interest in increasing its revenues. For example, in Italy, inheritance tax starts from 4%, and can go up to as much as 40% in the United Kingdom, and up to 55% in the USA and Japan, according to different laws.
However, this was not always the case. Before the law was amended in Israel in 1981, there was an inheritance tax in place that ranged from 40-70%, depending on the scope of the inheritance and the year the inheritance was received.
In 2000, the Ben-Bassat Committee proposed bringing back the inheritance tax, but its recommendations are still yet to be implemented.
Usually, the amount of tax to be paid decreases the closer the heir is to the testator, in terms of blood relation.
However, when it comes to an inheritance that comes from an overseas country, the tax laws of that country will apply to the inheritance, and the assistance of an expert in foreign law or a local lawyer who is familiar with the authorities and relevant laws in place is therefore needed.
Tax on Inheritance from Abroad
The basic rule is that a citizen or resident of Israel does not have to pay tax on inheritance that they have received. This also applies in the case of a foreign resident, when the inheritance is received from assets or funds, whether it comes from Israel or abroad.
Until 2003, no taxes were applied to residents or citizens of Israel who had bank accounts abroad. However, the law was amended. After 2003, if you choose to keep the money abroad (in the country of origin), both citizens and resident are required to report the accumulation of profits in the account to the tax authorities, and taxes are imposed on these profits, as they are not part of the inheritance itself. On certain occasions, this tax is also imposed on inheritances received before 2003.
It is therefore recommended to reach an open, voluntary settlement with the tax authorities in Israel, as they too have an interest in determining a reasonable tax rate and avoiding criminal proceedings.
The tax rate is not uniform and varies according to several circumstances, including how much time has passed between when the funds were received and the voluntary disclosure process begun, whether the testator was an Israeli citizen or a foreign citizen, the nature of the proof of the source of the transfer of funds, the relation between the heir and the testator, the heir’s past dealings with the tax authorities, the amount of funds and profits received, and other circumstances.
It is important to distinguish between inheritance tax that applies to the heir after he receives the inheritance, and estate tax that applies before the heir receives the estate.
Although there is no inheritance tax in Israel, as was mentioned previously, the tax authority may impose taxes in certain cases, for example, capital gains tax when selling shares. As a result, it is necessary to carry out an orderly and legal procedure with the tax authorities before any action is performed that is connected to the assets inherited.
In order to receive the inheritance, several processes must be followed, each of which may take time. These processes must be followed together with the help of a professional lawyer specializing in inheritance, who will be sure to follow the process correctly together in communication with the relevant authorities, which will save the heir a lot of money.
- Examining bank fees: what is the best way to transfer money between countries? Which bank account is it best to transfer from, in which manner and even at what time. The fees charged by banks for international money transfers, especially if it is also a foreign currency conversion fee, may add up to large sums of money
- The date of realization: the stock market is volatile, but so is the value of currency, property, real estate, etc. It is therefore very important to determine the date of realization for each of the assets
- Location of realization: where is the best place to conduct the realization of inheritance? When it comes to real estate assets, there is not much choice, but when it comes to securities, there exists the option to sell in the country of origin, or to transfer the assets to Israel. In each country, there are different laws and different taxes imposed on profits at the time of sale, and the location of the realization of the assets can enable you to save a large amount of money.
Transfer of Inheritance Money from Abroad to Israel
Due to the frequent cases of money laundering that occur between countries, and the Prohibition on Money Laundering Law that was established in 2000, any transfer of money from abroad, especially in large amounts, arouses suspicion. Today, it an accepted that the bank, which acts as a kind of gatekeeper, will also be required to cross-examine the source of the money and its legitimacy, and will therefore require documents verifying this from the country of origin.
In many countries there are inheritance taxes, and thus an Israeli citizen who inherits assets overseas will be subject to the taxes in that country. In addition to his, he may also be required to pay taxes to the Israeli authorities due to profits earned from these assets (for example, an increase in the value of an apartment, profits gained from shares, etc.).
For example, many Israelis own real estate assets or shares in the US as an alternative investment to real estate in Israel. If that person dies and his descendants inherit the property, they are expected to pay taxes on the asset if its value is over $60,000, even if they possess dual citizenship. When it comes to American citizens, they are only expected to pay taxes on inheritances worth over $11 million, so in addition to this, we can recognize that there is discrimination against foreign citizens.
The U.S., unlike Israel, determines the tax according to the value of the real estate asset on the day of the owner’s death. Therefore, if the income is sold immediately after the heir receives the inheritance, they will not have to pay tax, however if it is sold after its value has increased, the heir will have to pay a proportional tax on the profit, for the amount the value increased by since the date of the original owner of the asset’s death.
When a lawyer comes to examine the inheritance money, he will first examine its value. Often, this is an estimated approximation and is not accurate. For example, the sale of a real estate property can vary depending on the buyer, the time allotted for the sale, the market value and a number of other factors.
After this, a background check is carried out so that the correct procedures to be conducted can be determined, as well as the risks and the cumulative costs of managing the case in Israel compared to abroad. It is decided whether there is the need for a local lawyer to deal with the state authorities in the country of origin. Additional officials such as an accountant, appraiser, broker, estate portfolio manager, etc. are also appointed at this stage if necessary, and the fees charged by the bank in Israel, the bank abroad, etc are established.
In the third stage, an assessment of the legal procedures to be conducted in the country of origin as well as in Israel is made. This influences the amount of time the procedure will take, and of course the cost.
Lastly, the strategy in which the inheritance will be realized in Israel until the heir receives it is determined, also taking into consideration the various legal issues, regulation, fees and more.
Receiving an inheritance from a foreign country is a complex and lengthy process that requires expertise in international law, inheritance law and the foreign law of that particular country. Often, this is process is conducted by a team of lawyers that involves additional parties, such as local lawyers in the same country. It is therefore recommended to seek legal assistance from a law firm that specializes in this matter. Our firm deals with inheritance law, notary services, transfer of inheritance money from abroad to Israel and representation of heirs in proceedings before the Registrar of Inheritance. At our firm, you’ll be able to find lawyers who are experts in the field, with many years of experience, who will be happy to meet with you and answer any questions you may have.
We want to achieve the best results for you, and we highly recommend contacting a lawyer who is an expert in the matter. Together, we will create a joint action plan that will ensure that you will receive the appropriate guidance, support, recommendations, and professional legal representation. We would be more than happy for you to contact us via phone at 055-982-6594 or through the live chat on our website.