Do you have an independent trading account? You will soon receive a significant tax benefit
The unified investment account reform promoted by the Ministry of Finance is expected to include retail investors who trade securities independently. The implication: the possibility of tax deferral and even a full exemption from capital gains tax under certain conditions, subject to a deposit ceiling of 200,000 shekels.
A major reform in the investment sector, which includes the establishment of a unified investment account while equalizing tax conditions between various savings products, was finalized at the end of the current Knesset term. The Ministry of Finance intends to reach the legislative stage following the formation of the new government after the elections.
As part of this move, savings policies, investment provident funds (Kupot Gemel Le-Hashkaa), and mutual funds will be consolidated under a dedicated platform. On deposits of up to 200,000 shekels in total, an exemption from capital gains tax will be granted if the funds are withdrawn as an annuity after retirement age. Additionally, tax deferral will be possible when buying and selling assets, until the funds are withdrawn back to the current account.
It has emerged that these benefits will be extended to a broader audience of investors: retail investors. Anyone holding a securities account at a bank or investment house and trading individual stocks will enjoy these new tax benefits once the legislation is completed. This was confirmed by Moran Moshe Hantzis, Senior Deputy to the Chief Economist, in the podcast "The Money of Life Itself" (Ha-Kesef Shel Ha-Chayim Atzmam).
The significant benefit that will be canceled
The reform will cancel the most significant benefit currently provided in investment provident funds, which have an annual deposit ceiling of about 83,700 shekels: the unlimited exemption from capital gains tax granted to those who withdraw their funds as an annuity after age 60. The reform will also cancel other benefits in savings policies. For instance, the tax deferral option when moving between investment tracks will be limited to a cumulative deposit ceiling of 200,000 shekels.
The Ministry of Finance has repeatedly emphasized that the reform is fiscally neutral, meaning the change in tax benefits will neither add to nor subtract from the state treasury. However, this is a controversial argument. Data revealed in Globes indicate that the tax exemption currently provided when withdrawing investment provident fund money as a pension is almost never utilized in practice.
According to information provided by the Investment Houses Association to the committee discussing the reform, in 2021–2023, the rate of savers who chose to withdraw their money as an annuity from an investment provident fund was only 0.04%–0.06%. Although this is a relatively young investment product launched about a decade ago, this negligible rate suggests that the loss of state tax revenue due to this benefit is extremely marginal.
The significance of these data is that if the next government adopts the reform, the tax benefit upon withdrawal as an annuity will remain largely theoretical, while the limitation of the exemption when moving between tracks represents a direct blow to savers, who will be forced to pay more taxes.
