The "Investment Account" reform: How will the new model exempt from capital gains tax work?

The Ministry of Finance and the Chief Economist recently announced an intention to promote a new reform in the capital market under the title "Investment Account." The goal of the move, based on a long-standing American model, is to solve the problem of tax erosion in the accumulated savings of Israeli citizens. Today, any change in the composition of an Israeli saver's investment portfolio — whether it involves moving between mutual funds, selling a stock, or switching investment houses — is considered a tax event requiring immediate payment of capital gains tax. This payment reduces the amounts in the portfolio and diminishes the effect of compound interest over the years.

The reform proposes an alternative mechanism that will defer tax payment until the time of withdrawal. Accountant Tzahi Mane, founder and CEO of Mane Accountants, explains the proposed mechanism: inside this "box," the saver can perform any financial action — buy stocks, sell, move between funds, or switch investment houses — and as long as the money remains inside the account, no "tax event" occurs and no capital gains tax is paid.

According to the proposal, every Israeli citizen will be able to open such an account and deposit up to 200,000 shekels per year. Thus, a family of four will be able to deposit up to 800,000 shekels per year into a tax-protected savings account. Mane demonstrates: a 40-year-old saver who deposited 100,000 shekels into the box, and over 20 years performed 40 transitions between investments, can reach a sum of about 500,000 shekels at the end of the period, thanks to compound interest. In the old system, where he is required to pay tax on each of the 40 transitions, the effect is eroded and he would have reached only about 380,000 shekels. This is a real difference of about 120,000 shekels.

In addition, withdrawing the money as a pension from age 60 grants a full tax exemption. Withdrawal as a lump sum before age 60 will be subject to regular capital gains tax at a rate of 25 percent.

Who is expected to benefit and who should be careful?

Savers aged 30 to 50, as well as families who will open accounts for their children for the long term, are expected to be the main beneficiaries of the reform. On the other hand, Mane warns that the move does not benefit everyone: those who already hold an investment provident fund in large volumes of one or two million might be harmed by the new deposit limit of 200,000 shekels per year, which reduces the future deposit capacity compared to the current situation.

As part of the reform, a "nurturing protection" will be activated, which will keep the four major banks away from operating the new accounts for the first three years, with the aim of allowing competition from investment houses and insurance companies. The managing body is expected to perform automatic tax offsetting only at the time of withdrawal, which will save savers from filing complex annual reports.

However, Mane notes: the central question is whether the implementation in Israel will be simple enough for the general public to truly use this tool. The key to the reform's success lies in accessible simplicity. The state's challenge will be to create a digital and transparent process so that every citizen can easily track their family deposit ceiling and savings tracks at the click of a button.

Although the Treasury has declared its intentions, the move is subject to the completion of legislation in the Knesset, and it is expected to take effect in 2027. Mane recommends not waiting: it is recommended to check the volume of funds held in investment provident funds now and compare it to the proposed ceiling. In addition, it is important to start thinking in family terms and not just as individuals — proper planning in advance will put you in an excellent position once the law takes effect.