Inheritance is a complex legal process in which many families deal with critical questions regarding rights, obligations, and tax duties. In Israel, inheritance tax does not exist as a direct tax on the inheritance itself, but there are other tax obligations that heirs must be aware of — primarily capital gains tax on inheritance and income tax obligations.

The purpose of this guide is to help you understand the legal and tax framework of inheritance in Israel, the required steps, potential risks, and how experienced legal representation can protect your rights and optimize the inheritance process.

Is There an Inheritance Tax in Israel?

The answer to this is interesting: Israel does not have a direct inheritance tax like other countries (for example, the United States has an American estate tax with very high rates for large estates). However, inheritance does involve legal expenses and income tax obligations, including capital gains tax on inheritance — which is a significant liability that many heirs forget to plan for.

Capital Gains Tax on Inheritance — What Exactly Is It?

Capital gains tax is a tax on capital gains realized when selling an asset (such as an apartment or land) or when inheriting it. When a person inherits a property, the tax authorities calculate the difference between its value on the date of death and the price at which it is sold. This gain — calculating capital gains tax on inheritance — can be significant, especially for high-value assets such as a second apartment or land in a desirable area.

For example: If David inherits a second apartment valued at ₪2,000,000 on the date of death of the decedent, and two years later he sells it for ₪2,500,000, the gain is ₪500,000. On this gain, capital gains tax will apply at a rate of approximately 25% (the rate may change according to current laws), meaning approximately ₪125,000.

Inheritance Tax in the United States — An Important Comparison

If you have connections to the United States or own assets there, it is important to understand inheritance tax in the United States (Estate Tax). In the United States, very large estates (above a certain amount that is updated annually) are subject to tax at a very high rate — sometimes up to 40%. This is different from the situation in Israel, where there is no direct inheritance tax, but there are capital gains tax and income tax obligations that heirs must be careful about.

Heirs who have international connections should consult with an attorney experienced in international tax law to avoid double liabilities or missed legal advice opportunities.

The inheritance process in Israel consists of several legal and administrative stages that every heir must understand. Each stage involves legal expenses, documents, and various regulatory requirements.

Stage 1: Filing a Request for an Inheritance Order

To begin the inheritance process, you must file a petition with the court to obtain an inheritance order (or letters of administration for an estate). This petition is filed in the court within the jurisdiction of the deceased's residence. The petition includes documents such as a death certificate, a will (if one exists), and details of the legal heirs.

At this stage, an experienced attorney can help you ensure that all documents are properly organized, that no evidence is missing, and that the petition meets all legal requirements.

Stage 2: Valuation of Assets and Property

After receiving the inheritance order, it is necessary to assess all of the deceased's assets — apartments, land, bank accounts, investments, and more. This valuation directly affects the calculation of inheritance capital gains tax and the distribution of the estate among the heirs.

Proper valuation of assets is critical, as incomplete or incorrect valuation can lead to problems with the tax authorities in the future.

Stage 3: Filing a Report with the Tax Authority and Paying Tax Obligations

An estate must file a report with the tax authority within a specified timeframe. This report includes all of the deceased's income up to the date of death, as well as various expenses. Additionally, inheritance capital gains tax must be calculated and paid on any asset sold after the inheritance.

The important point: an inheritance capital gains tax calculator must be accurate, as errors can lead to penalties, interest, and additional legal liabilities.

Stage 4: Distribution of the Estate and Closing the Matter

After paying all liabilities, the estate can be distributed among the heirs in accordance with the will or the law. At this stage, an attorney can ensure that the distribution is carried out fairly and legally, especially if there are disputes among heirs or if there are conflicting interested parties.

A second apartment is one of the most common assets in inheritance in Israel, and it is also one of the assets that may involve substantial tax expenses. Let us examine a practical case:

Scenario: Inheriting a Second Apartment in Tel Aviv

Rachel inherits a second apartment in Tel Aviv from her mother. The apartment was valued at ₪3,000,000 on the date of her mother's death. Rachel decided to keep the apartment for two years, but in the third year she sells it for ₪3,600,000.

Calculation of inheritance capital gains tax in this scenario:

• Inheritance value: ₪3,000,000 (value on date of death)
• Sale price: ₪3,600,000
• Capital gain: ₪600,000
• Capital gains tax rate: 25% (approximately)
• Capital gains tax liability: ≈ ₪150,000

Additionally, Rachel may be liable for income tax on the proceeds from the sale, depending on her legal status and other income.

In this scenario, advance legal consultation can help Rachel plan taxes efficiently, and perhaps consider different legal options (such as staged sales, charitable donations, or even leaving the apartment to descendants) that may reduce the tax burden.

If you have international connections or assets abroad, it is important to understand how inheritance tax abroad affects you.

Inheritance Tax in the USA (Estate Tax)

American inheritance tax is a direct tax on very large estates. In recent years, the increase in the exemption amount has made this tax less relevant for most people, but for very large estates (worth millions of dollars), the rate can reach 40% or even higher.

Additionally, in the USA there are state inheritance taxes in some states, and some states impose inheritance tax.

Inheritance Tax Abroad in Other Countries

In the United Kingdom, for example, there is an Inheritance Tax at a rate of 40% on estates exceeding a certain amount. In Germany, tax rates vary depending on family relationship and the value of the estate.

What Does This Mean for Heirs in Israel with Assets Abroad?

If you are an heir or expected to inherit assets abroad, you should:

• Consult with a lawyer experienced in international tax law
• Understand tax obligations abroad and in Israel to avoid double taxation
• Plan the inheritance strategically to reduce the tax burden
• Ensure that all documents are properly translated and legally valid in both countries

The law office of David Wasserman can assist you in coordinating with lawyers abroad and managing the complexities of international inheritance.