Two Countries, Two Tax-Free Savings Vehicles
If you moved to Israel from the UK, you probably had an ISA (Individual Savings Account) as the cornerstone of your tax-efficient savings strategy. In Israel, the closest equivalent in spirit — a savings vehicle where investment growth is completely tax-free — is the קרן השתלמות (Keren Hishtalmut). But the mechanics are different in almost every way. Understanding both helps you plan your savings transition after aliyah.
Side-by-Side Comparison
| Feature | Keren Hishtalmut (Israel) | ISA (UK) |
|---|---|---|
| Tax on growth | 0% after 6-year lock-up (25% capital gains tax if withdrawn early) | 0% at all times |
| Annual contribution limit | Employee 2.5% + employer 7.5% of salary (up to a salary ceiling of ~15,700 NIS/month) | 20,000 GBP per tax year across all ISA types |
| Employer contribution | 7.5% of salary (common; not legally mandatory but standard in most contracts) | None — ISA is entirely self-funded |
| Lock-up period | 6 years (3 years if used for qualifying education) | None — withdraw at any time |
| Investment options | Managed fund tracks chosen by the fund provider | Self-directed: stocks, bonds, funds, cash (Stocks & Shares ISA) |
| Management fees (דמי ניהול (Dmei Nihul)) | 0-2% of assets + 0-4% of deposits (negotiable) | Platform fee + fund fees (typically 0.2-0.5% total for index trackers) |
| Availability for Israeli residents | Available from your first Israeli job | Not available — you must be a UK tax resident to contribute; existing ISAs can remain invested |
| Use after withdrawal | Any purpose (often used as a down payment for a home) | Any purpose |
How does the Keren Hishtalmut employer match work?
The single biggest difference is that Keren Hishtalmut includes an employer contribution. Your employer typically puts in 7.5% of your gross salary while you contribute 2.5% — meaning the employer pays three times what you do. This is effectively a 7.5% salary bonus that grows tax-free.
ISAs are entirely self-funded. There is no employer component. This makes Keren Hishtalmut substantially more powerful as a wealth-building tool for salaried employees, even accounting for the 6-year lock-up.
How long is the Keren Hishtalmut lock-up period?
An ISA offers instant liquidity — you can withdraw funds at any time without penalty or tax consequence. Keren Hishtalmut requires patience: you must wait 6 years from your first deposit before you can withdraw tax-free (reduced to 3 years if the funds are used for qualifying professional education or training).
If you withdraw from a Keren Hishtalmut before the 6-year mark for non-qualifying purposes, you pay 25% capital gains tax on the investment תשואה (Tsuaa)(returns). After 6 years, every shekel of profit is completely tax-free — no capital gains, no income tax, nothing.
What happens to your existing ISA after aliyah?
When you become an Israeli tax resident, you can no longer open new ISAs or contribute to existing ones. However, your existing ISA investments can remain in place and continue to grow. HMRC does not require you to close your ISA upon leaving the UK.
The critical question is how Israel taxes your ISA. During the 10-year foreign income exemption period, growth and withdrawals from your UK ISA are generally exempt from Israeli tax. After the exemption period ends, Israel treats ISA gains as regular taxable foreign income — the UK's ISA tax-free wrapper is not recognized by Israeli tax law.
How do you transition from an ISA to Keren Hishtalmut?
If you are a UK oleh starting a new career in Israel, here is a practical transition strategy:
- Keep your existing ISA invested. Do not sell ISA holdings just because you moved. The investments continue growing, and during your 10-year exemption they remain tax-sheltered from both UK and Israeli tax.
- Negotiate Keren Hishtalmut in your Israeli employment contract. It is a standard benefit but not legally mandatory for all employers. Make sure your contract includes it, and negotiate the דמי ניהול (Dmei Nihul) as low as possible.
- Start the 6-year clock immediately.The sooner your first deposit goes in, the sooner you reach tax-free withdrawal eligibility. Even if you change jobs, the clock does not reset — it counts from your very first deposit.
- Use ISA withdrawals strategically. If you need cash for a large purchase (like a deposit on an apartment), consider drawing from your ISA during the 10-year exemption period when withdrawals are not taxable in Israel, rather than breaking into your Keren Hishtalmut early.
- Plan for the post-exemption period. Before your 10-year exemption expires, consult with a cross-border tax advisor about whether to crystallize ISA gains while they are still exempt from Israeli tax.
Both the Israeli Keren Hishtalmut and the UK ISA deliver tax-free investment growth, but they work very differently. An ISA is tax-free at all times, capped at 20,000 GBP per tax year across all ISA types, entirely self-funded, and withdrawable at any time. A Keren Hishtalmut becomes 100% tax-free only after a 6-year lock-up (3 years for qualifying education), but its standout feature is the employer match: your Israeli employer typically contributes 7.5% of salary while you add 2.5%, a 3-to-1 ratio that grows tax-free. For salaried employees that match makes it one of the most valuable benefits in Israel. UK olim can keep an existing ISA invested after aliyah but cannot contribute once they are non-UK-resident, and during the 10-year new-immigrant exemption ISA growth and withdrawals are generally exempt from Israeli tax. Once that exemption ends, Israel taxes ISA gains as regular foreign income because it does not recognize the ISA wrapper.
No. They share one idea, tax-free investment growth, but the mechanics differ in almost every way. A UK ISA is tax-free at all times, entirely self-funded, capped at 20,000 GBP per tax year across all ISA types, and you can withdraw at any time. A Keren Hishtalmut is tax-free only after a 6-year lock-up (3 years for qualifying education), is funded mostly by your employer, and invests in managed fund tracks chosen by the fund provider rather than self-directed holdings.
Your Israeli employer typically contributes 7.5% of your gross salary while you add 2.5%, so the employer pays three times what you do. This is effectively a 7.5% salary bonus that grows tax-free, applied up to a salary ceiling of around 15,700 NIS per month. An ISA has no employer component and is entirely self-funded, which makes the Keren Hishtalmut substantially more powerful as a wealth-building tool for salaried employees, even accounting for the 6-year lock-up.
You must wait 6 years from your first deposit before you can withdraw tax-free, reduced to 3 years if the funds are used for qualifying professional education or training. If you withdraw before the 6-year mark for non-qualifying purposes, you pay 25% capital gains tax on the investment returns (tsuaa). After 6 years, every shekel of profit is completely tax-free, with no capital gains and no income tax. The clock counts from your very first deposit and does not reset if you change jobs.
No. HMRC does not require you to close your ISA when you leave the UK, and your existing investments can remain in place and continue to grow. Once you become an Israeli tax resident you can no longer open new ISAs or contribute to existing ones, but you can still switch funds within the ISA wrapper. Some UK platforms restrict accounts for non-UK residents, so check with your provider. If yours does not serve non-residents, you may need to transfer to one that does (such as Interactive Investor or AJ Bell) before making aliyah.
During the 10-year foreign income exemption period for new immigrants, growth and withdrawals from your UK ISA are generally exempt from Israeli tax. After the exemption period ends, Israel treats ISA gains as regular taxable foreign income, because the UK ISA tax-free wrapper is not recognized by Israeli tax law. Before the exemption expires, many olim consult a cross-border tax advisor about whether to crystallize ISA gains while they are still exempt from Israeli tax.
The two accounts serve different systems, so they are not a direct swap. A common transition pattern is to keep an existing ISA invested rather than selling it just because of a move, enroll in a Keren Hishtalmut through an Israeli employer as soon as possible, and start the 6-year clock right away. If cash is needed for a large purchase such as an apartment deposit, drawing from an ISA during the 10-year exemption (when withdrawals are not taxable in Israel) is one option some olim use instead of breaking into a Keren Hishtalmut early. This is general educational information, not personalized advice.
For US olim the closest comparison is Keren Hishtalmut vs. Roth IRA. Both offer tax-free growth, but Roth IRA contributions are post-tax with no employer match, while the Keren Hishtalmut includes a significant employer contribution. A key catch is that the Keren Hishtalmut is not considered a pension for US tax treaty purposes, which can create reporting complications, so American olim often consult a cross-border CPA about how to report it on their US return.
The Bottom Line
Keren Hishtalmut and the ISA both deliver tax-free investment growth, but they are designed for different systems. The ISA gives you flexibility and control. The Keren Hishtalmut gives you a massive employer match in exchange for a 6-year lock-up. For a salaried employee in Israel, the Keren Hishtalmut is one of the most valuable financial benefits available — make sure you have one from day one.
