Tax Benefits for Pensioners in Israel on Income from Securities

The taxation of pensioners is a highly specific area of tax law. Once individuals reach retirement age, the rules change: certain tax benefits become available that are not granted to working-age taxpayers.

The first important milestone is age 60. From this point on, passive income can be taxed at reduced rates. Passive income includes income from securities portfolios, rental properties, deposits, and savings programs.

In this article, we will focus on securities.

General Tax Rates in Israel.

• Income from securities: 25%
• Deposits and savings programs: 15%
• Shekel-denominated bonds without indexation: 15%

After turning 60, if the taxpayer does not have significant active income (from employment, pension, or business), a special benefit applies: annual income up to NIS 193,800 can be taxed at a reduced rate.

It is important to note:

• The benefit applies to capital gains and interest income.
• Dividends are always taxed at 25%.

Example Calculation.

Consider the following case:

• Monthly pension: NIS 7,000
• Annual income from securities: NIS 30,000
• No dividends in the portfolio.

At age 60, the taxpayer would pay only 14% tax on this income. Taking into account the partial pension exemption (“kibua zhuyot”), the effective rate could be reduced further to around 12%.

This makes securities an especially attractive investment vehicle for pensioners from a tax perspective. When choosing funds, retirees should prefer those where returns are generated through capital gains rather than dividends, in order to maximize the benefit.

Practical Considerations: Brokers

The ability to claim these benefits depends largely on the type of broker:

• International brokers (e.g., Interactive Brokers) do not withhold Israeli taxes automatically. The investor must file an annual tax return and report the correct rate.
• Israeli brokers (banks, insurance companies) withhold tax at the full 25% rate. To obtain the pensioner’s benefit, the taxpayer must file a request for a refund, supported by forms 867 and 106.

While the tax system is supposed to automatically recognize taxpayers over the age of 60 and apply the benefit (“zikuy gil 60”), in practice errors often occur. This is why careful calculations and oversight of the refund process are essential.

What About Cryptocurrency?

Cryptocurrency is treated as a capital asset for tax purposes. The same rules and benefits apply to gains from crypto investments. In Israel, the Bits of Gold exchange operates as a licensed tax agent and withholds taxes directly.

Conclusion.

After the age of 60, the tax burden on passive income in Israel can be significantly reduced — provided the planning is done correctly. For retirees, securities and even cryptocurrency can become highly tax-efficient investments.

My professional advice: Do not rely solely on the automatic system. Accurate tax planning and professional support ensure that all benefits are applied correctly and that no opportunities for tax savings are lost.

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