Shell apartment and acquisition tax in Israel: an unfinished new property is still a dwelling

The purchase tax on a "shell" apartment in Israel has long been a contentious issue. A decision reported this week by Globes brings useful clarification: a new apartment delivered with incomplete finishes is not considered a shell for tax purposes, even if the buyer must carry out significant work.

Whether you are buying a primary residence in Israel or a second home from abroad, this question matters: the tax difference can amount to tens or even hundreds of thousands of shekels.

The Case in Brief

A couple bought a new apartment at the end of 2022 in a central city, with a balcony, roof, and two parking spaces, for about 9.4 million shekels. This is not their only residence.

Before moving in, they rented another home for eight months and undertook over ₪580,000 in renovations. According to them, essential elements were missing: unconnected sanitary facilities, no tiling in the bathrooms, incomplete interior doors, no guardrails, missing kitchen and faucets.

They claim to have purchased a "shell" (dirat maatefet), classified as a simple "building," with a purchase tax of 6%. The tax authorities reclassified it as a residence, taxed at 8% then 10% for a non-sole residence. The couple appealed before the real estate tax appeals committee.

The Two Applied Tests

According to case law, residential use is assessed by two cumulative criteria:

Why the Application Was Rejected

The committee noted that the apartment:

- Had been built under a residential building permit;
- Had a certificate of occupancy and a certificate of completion confirming that construction was finished;
- Was connected to water and electricity and already subject to residential arnona;
- Featured, just days after the sale, parquet flooring, windows, electric shutters, outlets and lighting, central air conditioning, a tiled bathroom with shower and toilet, and a fitted kitchen.

For the committee, buying as-is with incomplete finishes or defects does not remove the residential character, especially since the remaining work was relatively minor. The buyers likely wanted to improve or personalize their home, which is their right, but that does not make it a shell.

The committee added that accepting this argument would have led to an unreasonable outcome: any home under renovation would temporarily become a "building" and benefit from a reduced rate.

A Loophole Already Closed

The issue had been sensitive since a 2022 Supreme Court decision, which allowed a seller of a penthouse purchased as a shell to avoid capital gains tax. The tax authorities then had the 2023-2024 Finance Law passed, broadening the definition of "housing": a shell intended for habitation is now taxed as a residence.

In other words, even a genuine shell bought today to live in no longer benefits from the previous advantage.

What This Means for You

Don't Rely on Renovations to Lower the Tax

The amount of the purchase tax depends on the property's status and your situation, not on the level of finish. Include it in your budget from the start, using the tax and fee calculator.

Have Your Tax Status Confirmed

Primary residence in Israel, second home, foreign resident, investor: each profile has its own rate. The recent purchase tax reform must be applied on a case-by-case basis. See our Mas Rechisha factsheet and our Israel real estate taxation guide.

Check the Delivery Condition in the Contract

For new builds, the specifications attached to the contract describe what the developer must deliver. If items are missing, it's a matter of compliance and defects, to be addressed with the developer, not a tax lever. An architect can draw up a list of issues upon delivery.

Budget Renovations Separately

Customizing a new apartment (kitchen, flooring, storage) can represent a significant sum. These expenses are added to the price, the 18% VAT included in new builds, the purchase tax, and closing costs of around 10 to 13%.

And what about a foreign resident?

A buyer who does not reside in Israel is generally subject to the tax scale applicable to properties that are not a sole residence in Israel, except for specific cases provided by law. The same logic applies: the condition of the property does not affect the tax scale. Your lawyer must confirm your exact situation before signing.

A lawyer validates your tax status and the contract, a broker integrates everything into the financing, and an architect oversees delivery and construction. IsraelStart coordinates these three experts for buyers from abroad as well as for Israelis already on site, across more than 300 new projects throughout Israel. A personalized assessment, with no obligation, allows you to estimate the real cost of your purchase.

Sources

- Globes, decision of the real estate tax appeal committee of the Central District Court (09/24/2026).

Figures and decisions reported by the Israeli economic press, reformulated and put into perspective by the IsraelStart editorial team. Indicative information, to be confirmed with a lawyer, broker, and expert before making any decision.