One advantage of pinui-binui for owners is that they usually do not pay tax on receiving the new apartment. Israel’s Real Estate Taxation Law includes special exemptions for urban renewal projects, and the agreement with the developer determines who bears payments that are not exempt. The exemptions are subject to conditions, so it is worth knowing them.
Capital gains tax (mas shevach)
In a pinui-binui deal the owner “sells” the rights in the old apartment to the developer and receives a new apartment in return. The law grants an exemption from capital gains tax on such a sale, subject to its conditions, including the type and value of the apartment. Where an owner has more than one apartment in the project, or non-residential property, special rules apply.
Purchase tax
Owners are generally also exempt from purchase tax on receiving the new apartment, under the conditions in the law. If an owner chooses an alternative, such as an apartment outside the project, the applicable rules must be checked.
Betterment levy
The betterment levy is paid to the local authority for an increase in value resulting from approval of a plan. Pinui-binui projects have an exemption or special arrangement, and in practice the developer bears the levy where it applies. The agreement should state this expressly.
VAT and other costs
The agreement should provide that all taxes, fees and levies that are not exempt, including VAT if applicable, are borne by the developer.
Selling during the project
In recent years the relief has been extended, and in some cases the exemption can apply on a sale before construction is completed. This requires individual review against the current law.
An inherited apartment
Inherited apartments have their own tax rules, and the Tax Authority has published positions on applying them to the new apartment. Check this in advance.
For any tax question, consult a tax adviser as well, in coordination with the owners’ lawyer.
Next steps
Every pinui-binui project is different: the building, the developer, the plan and the owners themselves. At Paz Israel & Co. we represent apartment owners in urban renewal projects, review the offer and the agreement and support the owners’ committee throughout. See our pinui-binui and urban renewal page, or contact us to arrange a meeting in Tel Aviv, Jerusalem or Modi’in.
This article provides general information about Israeli law as of the time of writing and is not legal advice.