Is There Inheritance Tax in Israel? What Heirs Actually Pay

Israel abolished its inheritance tax in 1981 and has never reinstated it. There is no estate tax, no death duty, and no transfer tax on assets passing from the deceased to their heirs.

That's the good news. The bad news is that "no inheritance tax" doesn't mean "no tax liability." Several other charges catch English-speaking heirs off guard.

The Capital Gains Trap: Mas Shevach

The biggest financial surprise for heirs in Israel is Mas Shevach — capital gains tax on inherited real estate.

Receiving the property is tax-free. But when you eventually sell it, the Israel Tax Authority calculates your gain from the deceased's original purchase date and price, not the property's value when you inherited it.

This is a carryover cost basis, and it works very differently from the "stepped-up basis" that US heirs receive. If your parent bought a Tel Aviv apartment in 1995 for NIS 500,000 and it's now worth NIS 4,000,000, you'll owe capital gains on the full NIS 3,500,000 appreciation — adjusted for inflation — when you sell.

The standard Mas Shevach rate is 25% on the taxable gain. For a property held for decades, this can easily reach hundreds of thousands of shekels.

Can You Reduce Mas Shevach?

Several deductions and exemptions exist:

• Owner-occupier exemption: Israeli residents who lived in the property as their primary residence can claim a full exemption (once every 18 months). Non-resident heirs typically cannot claim this.
• Inflation adjustment: The cost basis is adjusted for CPI inflation, which reduces the taxable gain.
• Improvement costs: Documented renovation and improvement expenses can be deducted from the gain.
• Linear calculation: For properties purchased before 2014, a portion of the gain attributable to pre-2014 appreciation may be taxed at lower rates.

Getting the Mas Shevach calculation right — especially for properties with decades of appreciation — usually requires a specialised real estate tax advisor (Shama'i) and early planning.

The 90-Day Pension Tax Clock

Pension funds, provident funds (kupot gemel), and life insurance policies bypass probate entirely in Israel. They pay out directly to the named beneficiaries.

But there's a critical deadline: if the deceased was under 75 at the time of death, heirs must claim and withdraw the funds within 90 days to receive the transfer entirely tax-free. Miss that window, and the profit component of the fund faces a 25% capital gains tax.

For an estate with significant pension savings, this 90-day clock can mean the difference between a tax-free transfer and a bill of tens or hundreds of thousands of shekels.

The countdown starts from the date of death — not from when you learn about the funds or receive the death certificate. Families managing the estate from abroad need to prioritise this step immediately.

Arnona and Municipal Charges

While the estate is being settled — which typically takes three to twelve months — municipal property tax (Arnona) continues to accrue on the deceased's property. The municipality won't pause billing because the owner has died.

Heirs are jointly liable for unpaid Arnona, and the Land Registry (Tabu) will not process a property transfer until a municipal clearance certificate confirming all local taxes are paid is presented.

If the property sits empty during probate, you're paying full Arnona on a vacant property. Some municipalities offer a partial discount for vacant properties, but you need to actively apply for it — it's not automatic.

What About Assets in Other Countries?

Israel doesn't tax foreign inheritances received by Israeli residents, and it doesn't impose exit taxes on inherited assets leaving the country. But cross-border estates create a different problem: the foreign jurisdiction may impose its own inheritance or estate taxes.

A US citizen inheriting Israeli property doesn't face US estate tax on the Israel side, but may face US reporting requirements. A UK heir may encounter IHT on their worldwide estate if they're UK-domiciled. The interaction between Israel's no-tax regime and the home country's tax laws requires advice from a cross-border tax specialist.

The Bottom Line

"No inheritance tax" in Israel is technically true but practically misleading. Between Mas Shevach on property sales, the 90-day pension deadline, ongoing Arnona liability, and cross-border tax complexity, the actual cost of inheriting in Israel can be substantial.

The Someone Died in Israel: English Speaker's Emergency Guide includes step-by-step instructions for each of these financial triggers — including the exact forms for pension claims, Tabu transfers, and Arnona notifications — so nothing falls through the cracks during the settlement window.

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