Rights in real estate: ownership, leasehold and what selling means

According to the legal definition, real estate in Israel includes land, structures, houses and other equipment permanently fixed to the land. Ownership, or a lease of more than 25 years over such real estate, is recognised as a right in real estate. When it comes to tax obligations, the Real Estate Taxation Law is the guiding force for concepts relating to rights in real estate, their sale, and the tax liability involved. The sale of a right in real estate is permitted by law, whether for consideration or without it. In terms of betterment tax and purchase tax, the sale of a right in real estate is defined as the grant, transfer or waiver of a right in real estate. In the following paragraphs we will delve into the various rights that exist in real estate and what is involved in selling them.

The right of ownership

Ownership is a fundamental right enshrined in various legal and social systems. This right is the ability to hold, control and transfer any property, asset or resource that has been justly acquired. It is a crucial aspect of economic, political and social systems, as it determines how people can use and benefit from the resources available to them. The right of ownership is a cornerstone of many societies and is often regarded as a defining principle of individual freedom and autonomy.

The cornerstone of rights in real estate is, without doubt, ownership, as established in the Land Law. In essence, ownership means holding the right to possess, use and carry out a transaction with real estate, subject to legal or contractual restrictions. The landowner holds ownership of the property and is registered as such in the Tabu or in any other recognised register. The right of ownership includes a range of protections and rights.

It is a legal framework designed to facilitate the holding, use and transfer of property, thereby maximising the opportunities for owners to derive the greatest possible benefit from their holdings.

The right of lease

The right of lease is a fundamental right for many people who wish to acquire assets without the burden of full ownership. This right allows the temporary transfer of ownership and rights of use in a particular asset, such as a vehicle or a property, with the possibility of a potential purchase at a later date.

While it may not carry the same weight as full ownership, the right of lease can grant a long period of holding land, often lasting 49 or 99 years, with the payment of lease fees to the landowner. Typically, the authority to lease land for several generations is granted to the State, the Development Authority or the Israel Land Administration, as is the case in moshavim and kibbutzim. A lessee in these circumstances is granted a 49-year lease with an option to extend it for a further 49 years.

Registration of the right of lease is possible only when the State or another authority is registered as the owner of the property and the lessee is registered as the individual holding the right of lease. Leases exceeding 25 years are classified by law as “generational leases”, granting the lessee extensive rights in the land, such as the ability to register a mortgage, approve an easement, or sublease the land to a third party.

What is the sale of a right in real estate?

The sale of a right in real estate can be defined as the process of transferring ownership of a specific entitlement or privilege connected with a property. This may include the right to access a certain area, to use certain resources, or to carry out certain activities on the property. It is important to note that this type of sale differs from the sale of the property itself, as it relates only to a particular set of rights or privileges attached to the property.

When it comes to tax liability, defining the sale of a right in real estate is of paramount importance. The Real Estate Taxation Law is responsible for determining the tax liabilities arising from the sale of such rights. According to the law’s specific definition, the sale of a right in real estate, whether granted for compensation or without it, constitutes any act of transfer, waiver or grant of a right in real estate.

• One example of creating a new right is through a grant, such as when building rights are conferred by the State.
• The term transfer refers to a specific situation in which an individual has a particular right in a plot of land and chooses to relinquish that right to another individual.
• A waiver is a real estate document that relinquishes the right to receive a certain entitlement, such as building rights.

Under the law, the transfer of a right in real estate through inheritance, in the course of a divorce, or through acquisition by a trustee, liquidator or receiver, is not considered a sale. Likewise, waiving a right without receiving compensation is not subject to tax.

Tax liability for betterment is a crucial aspect of financial management

Under the Real Estate Taxation Law, the betterment in the value of real estate is subject to tax upon the sale of the property. “Betterment tax” refers to the amount by which the sale price exceeds the original purchase price. The calculation takes the index into account and factors in expenses related to the purchase and improvement of the property, such as renovation, legal fees, brokerage, purchase tax, betterment levy, mortgage interest and depreciation. In essence, real estate betterment tax is a form of capital gains tax that applies to the sale of an asset that is not business inventory. The tax rate is 25% of the net betterment resulting from the sale of the property.

Liability for purchase tax is an important financial matter that cannot be ignored

Under the Real Estate Taxation Law, the responsibility for paying purchase tax falls on the buyer when acquiring a right in real estate. This tax is always a percentage of the total sale value. For properties not classified as residential apartments, the tax rate remains fixed for the entire value of the property, currently standing at 6% – land, for example. However, in the case of residential apartments, the tax rate varies and is applied to each portion of the purchase sum at different percentages. In addition, the real estate taxation regulations set out certain criteria which, if met, allow for exemptions and reductions in purchase tax.