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The role of the lawyer in an inherited apartment sale transaction

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Are You The Heir To Unclaimed Israeli Property?

Table of Contents

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Do I Need a Lawyer when I Sell an Inherited Apartment?

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If you wish to benefit from a land betterment tax (hereinafter: betterment tax) exemption when selling an apartment (or a share thereof) that you received as an inheritance, you will have to navigate a process that includes several stages and satisfy numerous conditions at each stage. In this article, we will outline all these stages for you and explain the importance of utilizing the services of a professional real estate lawyer who can help minimize the risks and costs throughout the process.

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The Process of Selling an Inherited Apartment

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When selling an apartment you inherited, you might be exempt from paying betterment tax. However, this is a double-edged sword because the process of selling an inherited apartment requires adherence to additional procedural steps compared to a regular apartment sale. The process is particularly complex if there are additional heirs, in which case every step must be coordinated fully with them, including agreement signings. The request for a betterment tax exemption must be submitted within the framework of the declaration process for the sale of the real estate rights according to the Real Estate Taxation Law (Betterment and Transfer) 1963 (hereinafter: Real Estate Taxation Law). The application must be submitted within 30 days of the transaction, like any other real estate transaction, but there are preliminary steps in the case of an inherited apartment.

The first step to take before the sale and declaration is to obtain a succession order or a grant of probate by submitting a request to the Registrar of Inheritance Affairs. This is because a succession order or a grant of probate must be attached to the declaration of sale to legally validate the identity of the heirs (who may be eligible for the exemption). If the deceased was a foreign resident at the time of their death (regardless of whether the heir is an Israeli resident or not), documents proving that the deceased did not have another residential apartment in their country of residence must be provided and attached to the declaration of sale.

In the event that there are several heirs, they must all sign an estate distribution agreement, or an agreement among heirs. This agreement, enabled by the Inheritance Law 1965, allows the heirs to alter the division of the estate as set out in the will (or by law, in cases of legal inheritance). In this agreement, the heirs can decide among themselves on a different division of the apartment (or parts thereof), and of a division of other inherited assets. Following these steps, the transaction will then be registered in the land registry.

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Betterment Tax on the Sale of an Inherited Apartment

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According to Section 49B(5) of the Real Estate Taxation Law, the sale of a residential apartment received as an inheritance might be exempt from betterment tax even if the seller owns additional apartments, provided that the apartment meets the criteria of a “qualifying residential apartment” as defined by the Real Estate Taxation Law, and all supplementary exemption conditions are also met. A qualifying residential apartment is one that is owned by an individual, whose construction is completed, and that has been used for residence for 4 years preceding the sale or for 80% of the betterment period. Alternatively, the apartment may not have been used for actual residence but as a kindergarten or synagogue. Provided the apartment meets any of these conditions, it must also meet the following three conditions to qualify for the tax exemption:

  1. The heir selling the apartment is the spouse, descendant, or spouse of a descendant of the deceased.
  2. When the deceased was alive, they owned only one residential apartment, and not even a small part of another residential apartment [Tel Aviv-Yafo District Court Ruling 251/99 The Estate Administrator of the Late Hadara Weisglass v. The Tel Aviv Real Estate Taxation Manager (2001)].
  3. If the deceased were alive, they would have been eligible for a betterment tax exemption on the sale of a single apartment.

When the selling heir is a foreign resident, an additional condition is added by virtue of Tax Decision 7701/21, requiring proof that they do not own another apartment in their country of residence.

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Exemption Threshold - "Luxury Apartments"

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Is there an exemption ceiling for the sale of a “luxury apartment” when selling an inherited property? The ceiling for a “luxury apartment” applies to sellers in the sale of a single residential unit. The ceiling amount is updated annually. As of 2024, the exemption is up to 5,008,000 ILS, and the seller is required to pay full or linear betterment tax on the difference between this amount and the actual selling price of the apartment. This matter was addressed specifically in the Tel aviv Administrative Decision 44028-01-16 Mira Ariel v. Tel Aviv Real Estate Taxation Manager (September 27, 2017). An exemption from betterment tax for an inherited apartment depends on the entitlement of the deceased to an exemption, were they the one selling the apartment, with the heir effectively stepping into their shoes. As a result, it was determined by the court that the exemption threshold for a “luxury apartment” also applies based on whether the threshold would have applied to the deceased, were they to sell the apartment during their lifetime.

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Selling Half of an Inherited Apartment

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Sometimes it is not possible to obtain consent for a sale of an inherited apartment from all heirs who inherited portions of the apartment, and sometimes only a portion of an apartment is inherited because it was the only portion owned by the deceased to begin with. In the sale of a portion of an apartment received through inheritance, it is also possible to benefit from the same exemption from betterment tax as in the sale of an entire apartment received through inheritance, provided that it is a qualifying residential apartment, and all exemption conditions are met. In cases where several heirs jointly owned the same apartment, and only one heir wants to sell their share, it should be ensured that the sale is conducted with maximum consideration for the heirs wishing to retain their share, in order to prevent unnecessary disputes among the heirs. For example, by selecting a buyer acceptable to the heirs not selling their share.

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Risks Associated with Selling an Inherited Apartment Without a Lawyer

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Since this is a non-standard sale process which requires adherence to multiple additional procedural and legal steps, there is a greater risk of committing errors, especially when there is more than one heir to the same apartment. The main risk of selling an inherited apartment without the guidance of a professional real estate lawyer involves failures to meet the deadlines for submitting the exemption request within the framework of the declaration process due to delays in fulfilling the special preliminary conditions applicable to the sale of an inherited apartment. For example, difficulties in obtaining a succession order or a grant of probate in time, or in the case of a foreign resident, difficulties in providing documents proving that the deceased did not own another residential apartment in their country of residence.

Additionally, an agreement among heirs is complex but critical for efficient and economical tax planning, as well as for protecting the rights of the heirs. For such an agreement to be valid and legally binding, it must comply with both general contract law and specific and rigorous rules set forth in the law regarding agreements among heirs. If such an agreement is not reached, the right to exemption from the sale may be compromised. Furthermore, difficulties in managing the negotiation process for such a sensitive family agreement or lack of coordination with other heirs may lead to unnecessary family disputes.

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Legal costs in an Inherited Apartment Sale Transaction

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The fee charged by a real estate lawyer for handling the sale of an inherited apartment may vary depending on the region where the service is provided, the complexity of the transaction, and the personal pricing of the lawyer, which varies according to their personal experience and expertise. A fee that is too low should raise a red flag regarding the quality of the service provided. The common and accepted range in the market is between 0.5% and 3% of the transaction amount, depending on the complexity of the transaction. To this, an additional amount of several thousand NIS may be added, for the purpose of obtaining a succession order or a grant of probate, and drafting an estate distribution agreement among the heirs.

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Why is it Important to hire a Lawyer in an Inherited Apartment Sale Transaction?

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In order to benefit from your right to a betterment tax exemption on the sale of an apartment received through inheritance, you must comply with all the conditions set by the law. A person without legal knowledge or expertise in the field may commit unnecessary errors that could cost them their exemption rights. Therefore, it is not advisable not to undergo this process without the guidance of a real estate lawyer, who is also an expert in inheritance matters. At A.S Inheritance Law Firm, you will find a lineup of lawyers specializing in real estate and inheritance matters who have provided guidance to clients in countless inherited apartment sale transactions.

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Questions and Answers

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In the case of selling an inherited apartment, there are additional steps to be taken before declaring the sale of the property for the purpose of an exemption from betterment tax. These steps include obtaining a succession order or a grant of probate, providing documentation proving that the deceased did not own another residential property in their country of residence, and signing an inheritance distribution agreement in the case of multiple heirs. Finally, the transaction must be registered in the land registry after coordinating with all relevant heirs.

A lawyer specializing in real estate with an experience in selling inherited apartments will make sure that you meet all the legal and procedural requirements for obtaining an exemption from betterment tax, thereby saving you significant amounts of money, energy, and time.

Yes. You can benefit from an exemption from betterment tax on the sale of an inherited apartment when the property meets the definition of a “qualifying residential property” according to the Land Betterment Tax Law, and when all specific exemption conditions are met: 1) familial relationship – the heir is a spouse, descendant, or spouse of a descendant of the deceased; 2) during the deceased’s lifetime, they owned only one residential property; and 3) if the deceased was still alive, they would have been entitled to an exemption from betterment tax in the sale of a single apartment.

Yes. The sale of an inherited apartment from one heir to another is treated like any other sale of an inherited apartment, and it is possible to benefit from an exemption from betterment tax if the property meets the legal definition of a “qualifying residential property”, and meets all the exemption conditions specified in Section 49B(5) of the Real Estate Taxation Law.

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Disclaimer 

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All of the above does not constitute legal advice or a substitute for legal advice, and all information contained on the site serves as general information only. The aforesaid does not replace information provided by an attorney, and the reader should contact and consult with an attorney who specializes in the field before taking any legal action. Anyone who relies on the above in any way does so at his own risk, and the responsibility for any direct or indirect result due to reliance on the aforesaid will apply to the user only.

To Find Out More, Contact us:

office@asinheritancelaw.com

+ 178 62337694 (New York)

+972 48331212 (Israel)

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