So what is the Amendment 125d benefit? This benefit dictates that people who were born in 1984 or earlier are entitled to a yearly tax refund for gains that have accumulated in bank savings scheme deposits and in various savings policies. How does one realize the benefit?
People who were born in 1984 or earlier are entitled to a deduction of 13,440₪ (as of 2021) from their interest from income; however, the deduction may not exceed the totality of their income from interest. When it comes to couples, each couple is entitled to a deduction of 16,560₪ from their income from interest; however, the deduction may not exceed the totality of their income from interest.
The criteria and conditions for realizing the benefit
Those who were born in 1984 or earlier are entitled to an exemption from paying capital gains tax. The benefit imposes a different ceiling for individuals and for couples.
- For individuals, the ceiling of capital gains tax exemption is 13,440₪. In other words, the tax refund (i.e., the benefit) is 3,360₪ (25% of 13,440₪).
- For couples, the capital tax exemption is 16,560₪ altogether. In other words, the tax refund for both is 4,140₪ (25% of 15,560₪).
In addition, the tax exemption benefit is only for interest-bearing investments and savings, such as savings policy and bank deposits, or for capital gains that have accumulated as part of a savings policy program.
An example of the benefit’s realization:
| Product type | Savings policy | Mutual fund / managed (consulted) investment portfolio |
| The client’s age | Born in 1984 and earlier | Born in 1984 and earlier |
| The investment’s duration | A year | A year |
| Investment amount (₪) | 250,000₪ | 250,000₪ |
| Yield (for illustration) | 5% | 5% |
| Accumulated gains | 12,500₪ | 12,500₪ |
| Amendment 125d benefit for an individual | 13,440₪ | 0 |
| Taxable amount | 0 | 12,500₪ |
| Capital gains tax payment | 0 | 3,125₪ |
| Fund amount after tax | 262,500₪ | 259,375₪ |
| Net yield | 5% | 3.75% |
How to realize the benefit in practice
The benefit is given only after the gains have been withdrawn in practice, not during the savings period, in which the gains are only “on paper”. In addition, the benefit is not automatic: in order to receive the refund for gains that have accumulated in the instruments included in Amendment 125d (the pensioner benefit), a theoretical redemption (theoretical sale) must be conducted, after which a request and a certificate of approval (which is issued by the insurance company) must be sent to the Israel Tax Authority so that the institution will acknowledge the tax payment toward Amendment 125d.
Does the “theoretical sale” enable one to realize the benefit while continuing the savings?
Since this is a yearly benefit that resets every year, it should be realized in each of the savings years; this is why the possibility of conducting a “theoretical sale” exists. This means that the person conducts the technical act of withdrawing the gains that have accumulated in the policy in order to create a taxable event, i.e., acknowledgement of the gains and the collection of the capital gains tax; this way, the person can submit the document that will be given by the insurance company, a document that attests to the tax’s payment, after which the refund will be given.
Immediately after making the sale, the person can “re-deposit” the money to the policy and continue to benefit from the yield potential that might be generated until the gains are withdrawn in practice.
The purpose of this step is to increase the fund with no real tax payment, only with theoretical tax payment; then, the person can withdraw the gains up to the ceiling established in the tax benefit and continue to invest via the policy until next year – repeating the process in order to profit from the benefit’s realization once more. This is done every year until the final withdrawal of the money.