Wealthy Israelis Taking Cover as Kahlon Era Looms

The prospect of the reform-oriented Moshe Kahlon as Israel’s next finance minister already has wealthy Israelis taking cover — seeking shelter from increased taxes — according to Haaretz.

In particular, they fear that Kahlon will fulfill his promise to raise estate taxes, and the phones are ringing in the offices of lawyers and accountants who can advise them on circumventing any new tax.

“There are a lot of rumors and noise circulating about an inheritance tax. No one really know what will be and when but the pressure is already starting,” said Yair Benyamini, a tax attorney. “People already want to start transferring assets to their children today on the assumption that it’s the best way not to pay tax when they die.”

Kahlon said in February, during the campaign, that he would favor imposing a tax of 20% to 25% on estates worth 10 million shekels ($2.5 million) or more. “That’s a just tax that shows solidarity,” he said. “I think it’s good to both give and receive.”

“Some people won’t do anything even if they see that it’s going to happen, but that’s not the general rule: Most want to know what can be done with the time that’s left,” said Ziv Neufeld, who heads the tax practice at the Tel Aviv law firm Naschitz Brandes Amir. “Once an inheritance tax is in place, if that is what happens, it will be hard to avoid it.”

In 2011, Shelly Yacimovich, then Labor Party leader, proposed a tax of 5% to 12.5% on estates of 15 million shekels or more.

“People took this less seriously than they are now,” said Yaron Mehulal, senior partner in the Herzliya law office Eitan, Mehulal & Sadot. “Everyone is much more alert. Clients are asking for advice and weighing options.”

A gift tax is also a possiblity being discussed, and it would be an even bigger change, said Pinhas Rubin, an attorney with Gornitzky & Company in Tel Aviv who opposes the estate tax. “A gift tax will have a major social impact because it will change social and financial practices beyond recognition,” he said.

Rubin pointed out that instituting a new tax scheme is a complex process, taking months of study before a law could be written. Then, the Israel Tax Authority would have to establish a system to impose the tax, hire staff, and take other steps, which would take more time.

“I would recommend to Kahlon that he deal with other, more urgent, things first,” Rubin said.

Besides, there is no guarantee that either a gift tax or inheritance tax would pass the Knesset, even in a watered-down form. The lobbying effort to prevent it will be formidable.

Furthermore, the efficacy of such a new tax law, even if passed, is questionable.

“It will be easy for the wealthy to transfer their money. The most widespread way is through a trust — in the U.S. there’s a whole industry built around it,” he said. “It’s hard to plan when there isn’t any law, but in most countries family trusts aren’t considered part of an estate.”

This article appeared in print on page 6 of the March 27th, 2015 edition of Hamodia.