Urban Renewal Taxation in Haifa 2026: Betterment Tax, Betterment Levy and VAT for Residents

Urban renewal taxation is the factor that decides whether a resident walks away from a project with a net profit or with an unexpected tax bill. Apartment owners in an Evacuation-Construction (Pinui-Binui) project, or in a demolition-and-rebuild project, are in most cases entitled to an exemption from betterment tax and from the betterment levy on the rights they receive from the developer, but the exemption is conditional on meeting the requirements of the law and on executing the transaction correctly. In this Ahuza Real Estate guide you will get everything you need to know about taxes in urban renewal in Haifa: when there is an exemption, when you pay, and how to avoid mistakes that cost tens of thousands of shekels.

For a full overview of the process and the active projects, we also recommend reading Ahuza’s Urban Renewal in Haifa guide.

What urban renewal taxation is

Urban renewal taxation describes the full set of taxes that apply to an apartment owner in a project that renews an old building: betterment tax, betterment levy, purchase tax and VAT. The core idea in Israeli legislation is simple. The legislator wanted to encourage the strengthening of buildings and an increase in the housing supply, and therefore granted residents a series of exemptions whose purpose is that the resident should not pay tax on the consideration received from the developer in exchange for building rights.

In Haifa, where a large share of the buildings were constructed in the 1950s and 1960s, urban renewal has become a central engine of the local real estate market. Apartment owners in Hadar, Neve Sha’anan and Kiryat Eliezer encounter taxation questions as early as the stage of signing the agreement with the developer. An early understanding of the tax liability prevents surprises and strengthens the negotiating position with the developer. It is worth reading in depth about urban renewal in Haifa in order to understand the full picture before getting into the tax details.

The legal tracks in 2026: Shaked Alternative vs. Evacuation-Construction

To understand the taxation you first need to understand which track the project is running under, because each track carries its own tax logic. The old TAMA 38 model effectively ended in October 2023, and the plan is almost no longer approved for new projects. In its place, two main tracks operate today.

Single building: the Shaked Alternative

A single building is renewed today mainly through the Shaked Alternative, Amendment 136 to the Planning and Building Law. This track requires a detailed plan approved by the local committee, not just a point-specific building permit. The alternative defines a rights envelope in advance, allows the addition of floors and sometimes also mixed residential and commercial use. All of these create new value for the apartment, and this is exactly where the tax question comes in.

A complex of several buildings: Evacuation-Construction

When it comes to a whole complex of several buildings, usually starting from 24 existing housing units and up, the project runs through the Evacuation-Construction track at the district committee. In this track all the buildings are demolished and a planned complex is built anew, sometimes while upgrading neighborhood infrastructure. For details on Evacuation-Construction in Haifa see our dedicated guide to residents’ rights. For general background on the track you can review the Evacuation-Construction entry on Wikipedia. In both tracks, single building and complex, the resident enjoys similar tax exemptions, but the technical details differ.

Betterment tax and the exemption for residents

An apartment owner in an urban renewal project is in most cases exempt from betterment tax on the sale of building rights to the developer. The exemption is anchored in Chapter Five 4 and Chapter Five 5 of the Real Estate Taxation Law, and it means that the resident does not pay tax on the difference between the value of the old apartment and the value of the new apartment received. This is the essential difference that makes renewal worthwhile for the resident.

The exemption is not automatic. It is conditional on the consideration the resident receives not exceeding the value of an alternative apartment set in law, or an enlarged area within the ceiling the law permits. A resident who receives additional consideration beyond the ceiling, for example a large cash payment or a second apartment, may pay betterment tax on the excess portion. At this point it is important to review the agreement with a tax advisor before signing.

Another point that investors in Haifa often ask about relates to an apartment that is not a sole apartment. The rules in urban renewal are lenient also toward owners of an investment apartment, but it is still worth cross-checking the data against the general rules of purchase tax and betterment tax in Haifa, in order to see how the exemption fits into the overall asset portfolio.

Betterment levy: who pays and when there is an exemption

The betterment levy is a payment to the local authority amounting to half of the rise in the value of the real estate resulting from the approval of a plan. In an urban renewal project, the approval of the detailed plan significantly raises the value of the land, and ostensibly a large levy charge should have been created. This is where the exemptions the law grants to residents come in.

In projects based on the Shaked Alternative and on Evacuation-Construction, the law sets an exemption or deferral of the betterment levy for the original apartment owners, as long as they remain in the new apartment and do not sell it immediately. The developer, on the other hand, generally bears the levy liability in respect of the rights it exploits for sale on the open market. This division of the burden is set in the engagement agreement, and therefore proper drafting of the tax clause in the agreement is critical. You can delve deeper into the subject through the betterment levy entry on the Hebrew Wikipedia, which explains the principles of collection.

A common mistake is the assumption that the exemption covers every scenario. A resident who sells the new apartment a short time after occupancy may lose the exemption and pay the levy retroactively. Proper planning of the timing of the sale preserves the benefit.

VAT and the taxation of the compensation the resident receives

The construction services the developer provides to the resident, such as a new apartment in place of the old one, accompaniment, rent during the interim period and related expenses, are exempt from VAT for the resident under the special arrangement for urban renewal. That is, the resident is not required to issue an invoice or pay VAT on the benefits received. This is an essential part of the logic that allows projects to be realized without burdening the residents.

The compensation the resident receives is usually made up of several components: a larger new apartment, a contribution to the cost of moving, rent for the construction period and sometimes a balancing payment. Most of these components fall under the umbrella of the exemption, but a cash payment that exceeds the customary compensation may be considered taxable income. The distinction between exempt compensation and taxable consideration is not always clear, and therefore a specific review of the compensation structure saves disputes with the Tax Authority later on. It is also worth being familiar with the full residents’ rights in TAMA 38 and in renewal, because the rights and the taxation go hand in hand.

Comparison table: urban renewal taxation by track

When to turn to tax advice in urban renewal taxation

Most residents benefit from the exemptions without paying any tax at all, but there are situations in which professional tax advice pays for itself several times over. It is worth turning to an advisor when you receive an unusual consideration beyond the alternative apartment, when you hold more than one apartment in the building, when you plan to sell the new apartment within a few years, or when the project combines residential and commercial use. In each of these situations, the difference between proper planning and blind signing is measured in tens of thousands of shekels.

The Ahuza Real Estate team accompanies residents in Haifa throughout all stages of renewal, from reviewing the initial agreement to occupancy in the new apartment. An early review of the tax aspects before signing is the safe way to preserve the full benefit that the law grants.

Last updated: June 2026