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| Tax on growth | 0% after 6-year lock-up (25% capital gains tax if withdrawn early) | 0% at all times |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 |
The Employer Match Advantage
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.
The Lock-Up Trade-Off
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
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.
Transitioning from 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.
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.