Many foreign families hold land in Israel: a plot bought thirty years ago, a parcel received through inheritance, an agricultural lot kept “for the children”. Until now, holding that dormant asset cost nothing. A draft bill from the Ministry of Finance would change that by reviving a tax that has lain dormant for a quarter of a century — Mas Rechush (מס רכוש), at 1.5% of the land’s value every year. The bill has not been passed, but it already calls for checks.
I. A tax that never disappeared — its rate was simply set to zero
Contrary to a common belief, Israel never abolished Mas Rechush. The Property Tax and Compensation Fund Law (Hok Mas Rechush VeKeren Pitsuyim (חוק מס רכוש וקרן פיצויים), 1961) remains in force: only its rate was reduced to 0% from the year 2000, the authorities having found collection too burdensome. The legal framework stayed on the books.
The draft published in late 2025, within the budget accompanying legislation (Hok HaHesderim (חוק ההסדרים)), therefore does not create a new tax: it raises the rate of an existing one to 1.5% of the land’s market value, annually. The stated aim is twofold — to raise revenue, and to discourage land banking by making it expensive to hold a buildable plot empty.
II. What counts as “vacant land”: the 10% threshold
This is the most underestimated point. The tax does not target empty plots alone. Land carrying an existing structure may still be classified as Karka Pnuya (קרקע פנויה), vacant land, if that structure uses only a small share of the building rights permitted under the applicable planning scheme.
The threshold in the draft is 10% of the permitted building rights, where the former regime used 30%. That is a dramatic tightening. In practice, the following may be caught:
- an old single-storey house on a plot where the plan allows an apartment building
- a shed or utility structure standing alone on a large buildable plot
- a serviced plot where construction never started
- agricultural land held without any genuine farming activity
A built residential apartment is not targeted: the tax bears on bare or near-bare land, not on housing.
III. Exemptions narrower than they look
The draft provides a floor intended to spare very low-value land, built around a value threshold per dunam and an overall threshold covering all the land held by the same taxpayer. Successive versions of the text do not present these two thresholds in the same way — cumulative in some, alternative in others — and we deliberately quote no figure until the final text is settled.
The sensitive point for foreign owners lies elsewhere: the historic exemption for agricultural land would be substantially narrowed. It would benefit only land genuinely used for agriculture in accordance with the law. An agricultural parcel held as a family asset, leased and unworked, or left fallow, would fall within the scope of the tax.
IV. The real shift: owners must report and value the land themselves
The pre-2000 Mas Rechush worked through assessment notices issued by the authorities. The draft reverses the burden: it introduces online self-assessment, on the model already applied to Mas Shevah and Mas Rechisha. The owner would have to:
- report all of their land holdings each year, within a deadline falling early in the calendar year
- estimate the market value of each parcel and calculate the tax due
- report changes affecting ownership of the asset
The Director of Real Estate Taxation would retain the power to substitute their own valuation for the taxpayer’s, and proportionate penalties would apply for failure to report or for under-valuation. The first year of application would also carry very short deadlines, running from the date the law takes effect.
For an owner living abroad, who receives no Israeli post and does not log in to the Rashut HaMisim (רשות המסים) online portal, this shift to self-reporting is the real exposure: the costly item will not be the tax itself, but the missed filing.
V. What an owner can usefully do now
- Take stock of every Israeli plot, including those inherited and never regularised, and check on the land registry in whose name they stand.
- Have the building rights checked for each parcel and compared with the existing structure: it is that ratio, not the size of the plot, that triggers the classification.
- Document genuine agricultural use where it exists: leases, certificates, evidence of actual farming.
- Prepare the valuation: an appraisal by an Israeli real estate appraiser (Shamai Mekarkein (שמאי מקרקעין)) is the best protection against a reassessment, since a self-assessment binds the person who files it.
- Weigh the options — filing for a building permit, selling, or holding. An annual 1.5% charge materially changes the arithmetic of long-term land ownership.
- Review the interaction with your home-country tax position, including any wealth tax on real estate, on a case-by-case basis.
One important caveat: as things stand this is a draft. Its passage through the Knesset, its timetable and its final thresholds all remain uncertain, and an earlier attempt to revive the tax failed. No estate-planning decision should rest on the text as currently debated.
Conclusion – Why work with a lawyer on Israeli real estate taxation?
The difficulty here is not the rate, which is simple, but classification and procedure. Knowing whether a parcel crosses the building-rights threshold means reading a planning scheme; establishing that agricultural use can be relied on means assembling evidence; filing correctly means following an Israeli calendar from abroad. For an owner based overseas, taking stock now, while the text is still under discussion, costs far less than discovering the position under a penalty notice.
With this in mind, the law firm ABITBOL & ASSOCIES, drawing on its expertise in Israeli and international real estate law, assists its clients at every stage of reviewing their Israeli land holdings and their reporting obligations. Our lawyers make sure your interests are protected and that every step is completed in full security.
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Tel: + 33 (0)1 78 90 03 73
Fax: + 33 (0)1 77 74 63 99
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