A change contained in the 2026 state budget could mean a substantial interest in capital gains tax for sellers of investment homes. The surtax on high incomes, which was raised from 3% to 5% last year for passive income, will now also apply to gains on the sale of properties to which capital gains tax applies.
The annual income threshold above which the surtax becomes payable is NIS 721,560 this year. The rate is 3%, but in the 2025 budget the rate was raised to 5% on passive income (from dividends, interest, rents, and so on).
For 2026, the Ministry of Finance proposes to include gains on the sale of properties that are not exempt from capital gains tax in the calculation of income for the purposes of determining liability to the surtax. Up to now, this has applied only to homes sold for more than NIS 5.382 million. Since the capital gain on the sale of a home can be in the hundreds of thousands of shekels, or even more, it could bring a very large portion of a person’s annual income within the scope of the surtax.
In the case of a person who owns only one home, the sale of that home is exempt from capital gains tax (unless the sales price is above NIS 5.008 million), and such cases are not affected by the new surtax rules.
The main impact will be on people who own more than one home. When one of these homes is sold, the capital gain will be included in the seller’s annual income for the calculation of liability to surtax. The amount above the threshold will be liable to the additional 5% tax.
Adv. And CPA Dorit Binyamini of Meir Mizrahi & Co. points out that for sellers for whom, under the capital gains tax rules, the effective rate of tax on the gain on the sale of an investment home may be as low as 5%, the surtax could double their tax bill. Tax planning can, however, avoid the surtax or reduce its impact. In the case of a couple, one method suggested by Binyamini is to file separate assessments and split the proceeds of the sale of a home between the two of them, so that each takes advantage of the exempt amount.
According to Ministry of Finance estimates, the hike in the surtax rate yielded NIS 1 billion in tax revenue in 2025, and will add a further NIS 500 million in 2026. The extension of the surtax to gains of the sale of investment homes is expected to yield NIS 420 million initially, and NIS 500 million annually when fully implemented.
The Ministry of Finance tried to introduce the change in the 2025 budget but it was removed by the Knesset Finance Committee under Moshe Gafni. Now that Gafni is no longer chairperson of the Finance Committee, and unless there are further surprises, the new surtax rule will come into effect once the 2026 budget is passed.
Published by Globes, Israel business news – en.globes.co.il – on December 8, 2025.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2025.
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