From Tax Savings to a Tax Authority Confrontation: What to Know Before Registering a Property in Your Child’s Name
The economic reality in 2026 is more challenging than ever. It features volatile interest rates and high housing prices. Additionally, the Tax Authority has new enforcement against landlords. A significant barrier is the purchase tax for non-primary residence buyers.
Every Israeli enjoys feeling they have outsmarted the system. In real estate, this often means reducing tax liability. People use creative tax planning for property purchases or sales. Many parents and investors have available capital. They already own a residential apartment and want another property. However, they face a disappointing reality. A large part of the future return is lost to purchase tax. The intuitive solution seems simple: “Let’s register the apartment in the child’s name”. The child could be a discharged soldier, a student, or an adult without property. They would be considered a single-property owner for tax purposes. This is subject to legal definitions and conditions as of 2026.
On January 18, 2026, the Israel Tax Authority published a circular. It clarifies real estate taxation and purchase tax regulations. To read the detailed circular and its analysis, click here.
Is this a winning move? The short answer is no. Beneath the innocent thought of helping a child lies a complex issue. It is one of the most contentious topics in real estate taxation. This article will present the dangers for all parties. We will explain how the Tax Authority examines economic substance. We will also clarify the line between legitimate tax planning and an artificial transaction.
Why Do People Do It?
To understand the risk, let’s examine the numbers. The tax gap between an additional-property buyer and a single-property buyer is significant. It can reach hundreds of thousands of shekels.
For illustration, here are the main differences as of 2026:
Issue | Buyer of an Additional Property (Investor) | Buyer of a Single Property |
Purchase Tax | Up to ₪ 6,055,070 – 8% | Up to ₪1,978,745 – no tax is paid. |
Capital Gains Tax on Sale | May be liable for capital gains tax. This depends on the Real Estate Taxation Law and circumstances. | May be exempt or receive relief. This requires meeting single-property and other conditions. |
Financing (Mortgage) | Usually up to 50%. This is more conservative and subject to bank policy. | Usually up to 75%. |
Tax on Rental Income | Income is attributed to the actual owner for tax purposes. | If the child is the true owner, the income is attributed to him. |
The Financial Implication: A Property Worth ₪ 2.3 Million
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Investor – will pay purchase tax of ₪ 184,000
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Single Property – will pay purchase tax of ₪ 11,244 (3.5% on the value above ₪1,978,745)
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The Difference – ₪ 172,756
Danger 1 – Artificial Transaction
The Tax Authority does not rely solely on formal registration. It examines the transaction’s economic substance.
Section 84 of the Real Estate Taxation Law is relevant here. So is Section 86 of the Income Tax Ordinance in some contexts. They grant the Tax Authority broad powers. This includes the Director of Real Estate Taxation. The Authority can disregard or reclassify a transaction. This happens if it is artificial or for improper tax reduction. Today, the Authority has advanced cross-referencing capabilities. This allows it to examine control and economic enjoyment of a property. For example:
- Source of Funds: Who financed the purchase? What was the path of the money transfer?
- Income Path: Where does the rental income go? Does the child actually benefit from it?
- Management and Control: Who signs leases? Who deals with tenants and pays expenses? Who makes key decisions, like selling?
A parent might finance an apartment and register it in their child’s name. But if the parent receives the rent, the Authority may act. If the parent also retains control, the transaction may be deemed artificial. The Authority may then assess the tax based on its substance. It can demand additions like interest, indexation, and penalties. This depends on the circumstances.
A case law example illustrating this risk is Shmirt v. Director of Real Estate Taxation Tiberias. A couple gifted an apartment at a convenient time. This timing was relevant for their taxation on another property purchase. The Tax Authority argued this was a tax reduction scheme. The ruling emphasized a key point for artificial transactions. The starting point is collecting the true tax. This means examining the transaction’s economic substance, not just its form. The committee found a combination of factors indicating a “revolving door” move. The transfer created a tax benefit. However, the property effectively remained with the gift-givers. They continued to enjoy and control it.
Danger 2 – Impact on Family Dynamics
Beyond the Tax Authority’s oversight, this action has risks. It exposes the family to significant civil and legal challenges:
- Divorce of the Child: A spouse could claim rights to the property. This would be based on family law and specific circumstances. Such exposure could jeopardize the parents’ control over the asset.
- Loss of State Benefits: Registering a property in the child’s name may affect future eligibility. This includes housing programs like “Mehir Lamishtaken”. These programs require that the applicant does not own property.
- Insolvency and Creditors: If the child incurs debt, their assets are at risk. The property could be subject to seizure and liquidation. This is subject to law and potential defenses.
- Family Conflict: A child who is the registered owner can act on the property. Attempting to maintain control through improper means is risky. It harms the tax defense and increases legal exposure.
Our experience shows that such transactions carry unreasonable risk. This is true when there is no genuine separation from the parents. Besides tax assessments and penalties, there is criminal exposure. This depends on the circumstances and the Tax Authority’s findings. However, tax planning is a legitimate tool. Gifting to children is permissible. The transaction simply needs to be authentic. If the property truly belongs to the child, the risk decreases. The child has to act as the owner.
So How Do You Do It Right?
First, you must make a strategic choice. Is this a genuine gift? Or is it a loan disguised as a gift? The decision requires meticulous legal documentation. A professional should assist with this process. This includes organized money transfers and drafting binding agreements. It also means full, transparent reporting to tax authorities.
Beyond paperwork, the daily reality is the true test. To withstand the Tax Authority’s scrutiny, ownership must be substantive. The child’s ownership cannot be merely formal. This means rental income goes to the child’s bank account. He must also make all material decisions about the property. Severing the economic connection to the parents is critical.
Looking ahead, consider two more aspects: family protection and exit planning. For family protection, consider a prenuptial agreement. This can shield the asset from division during a divorce. For tax purposes, plan the future sale carefully. Cooling-off periods apply to gifted properties. These periods vary based on several factors. Therefore, check in advance when the child can sell the property tax-exempt. This will help avoid unnecessary taxation upon realization.
Our Clients – An Anonymous Case
A couple in their early 40s purchased an investment apartment in Petah Tikva for 3 million ₪ and registered it in the name of their minor child, believing this would reduce purchase tax
Purchase tax on a sole residential apartment is 45,538 ₪ while purchase tax on an investment apartment (i.e., not a sole apartment) is 240,000 ₪. By registering the apartment in the child’s name (so that the child would be considered the owner of a sole apartment), the family achieved a tax saving of 194,462 ₪.
Over the years, the apartment was rented out and the rental proceeds were deposited into the parents’ bank account. No gift deed or other document was executed to regulate the economic relationship surrounding the property. Years later, the child reached adulthood and learned for the first time that the apartment was registered in his name.
The registration also triggered civil-law consequences that had not been considered when the parents made their decision years earlier: the child was not eligible to participate in the “Mechir LaMishtaken” program due to the apartment being registered in his name.
Beyond the tax aspects, the situation caused significant harm to trust and family dynamics, leading to a dispute that could have been avoided through proper planning and documentation in advance.
After the family approached us, we assisted them in reviewing the legal issues and developing a plan of action aimed at reducing exposure and regulating the apartment going forward: addressing the matter vis-a-vis the Israel Tax Authority and preparing an orderly response to requests and audits if required, while concurrently putting in place a legal-family framework reflecting the parties’ rights and intentions through the appropriate documentation (including internal understandings and a prenuptial/postnuptial agreement, as needed and depending on the family’s circumstances), in order to prevent future disputes and protect the property within the family.
Undecided? Let’s Review It Together
Intra-family real estate transactions require dual expertise. You need knowledge of real estate tax and family law. Do not make multi-million shekel decisions based on rumors. A single mistake can be costly for years.
The law firm of Nimrod Yaron & Co. specializes in real estate taxation. We handle tax planning for transactions in Israel and worldwide. Our team provides legal guidance for intra-family deals. We invite you to a strategic consultation. We will examine your family’s data and map out the risks. We will build a legal and transparent action plan for you.
FAQ
Is it permissible to register an apartment in my child's name and have him sign a power of attorney that leaves me in control?
This is not recommended. If the parent retains control, the transaction may be deemed “artificial”. This could lead to tax assessments, interest, and penalties. In severe cases, it could even lead to criminal proceedings.
Can I give my child a loan to purchase the apartment instead of a gift?
Yes, but it must be a genuine loan. It requires a formal agreement and clear repayment terms. Actual repayments must follow the agreement. Otherwise, the loan may be reclassified as a gift.
My child is a minor (under 18). Is it a good idea to register a property in their name?
In most cases, this is a high-risk move. The tax definitions for a “family unit” must be examined. You should review the 2026 rules before taking any action.
Does my child have to live in the apartment to receive a purchase tax relief?
Not necessarily. Purchase tax relief depends on the “single property” definition. For a future sale with a capital gains tax exemption, residence may be significant. This is according to the law and case law.
What is the simplest way to know if the Tax Authority will see the transaction as "genuine"?
Ask one question: Who truly benefits and who has control? If the child is the substantive owner, the risk decreases. He must receive rent, manage the property, and make decisions. If the parent controls and benefits, the risk increases.
