UK-Israel Tax Treaty: A Practical Guide for British Olim

Which UK-Israel tax treaty actually applies to you?

This is educational content, not tax advice. UK tax law is complex and the interaction with Israeli rules can be subtle. Confirm any position with a UK Chartered Tax Adviser (CTA) experienced with Israeli residents before filing on either side.

The treaty in force between the United Kingdom and Israel is the 1962 Convention for the Avoidance of Double Taxation, as amended by the 1970 Protocol and the 2019 Protocol. The 2019 Protocol entered into force on 13 December 2019 and substantially modernised the treaty, particularly on dividends, interest, royalties, capital gains, anti-avoidance and dispute resolution. HMRC publishes a consolidated text and a treaty summary in the DT manual; both are linked in the sources.

For British olim, the headline is straightforward: the UK taxes on residence, not citizenship, so once you become non-UK-resident under the Statutory Residence Test, most UK income and gains stop being taxed by HMRC. The treaty fills in the remaining edges, especially around pensions, property income and residual UK-source items. There is no UK equivalent of the US saving clause, no UK equivalent of FBAR or PFIC, and no UK equivalent of citizenship-based taxation. The treaty is mostly straightforward to apply.

The Treaty in One Page

Articles relevant to most British olim, in the order you tend to use them:

• Article II (Residence): defines residence and tiebreaks dual residents via permanent home, centre of vital interests, habitual abode and nationality.
• Article VI (Dividends): 5% if the beneficial owner is a company holding at least 10% of capital throughout a 365-day period, otherwise 15%; exempt for dividends beneficially owned by a pension scheme.
• Article VII (Interest): 5% on interest paid in respect of bank loans, 10% in other cases; certain government and pension-scheme payments are exempt.
• Article VIII (Royalties): royalties are taxable only in the country of residence (full exemption in the source country) where beneficially owned by a resident of the other country.
• Article VIIIA (Capital Gains): gains on immovable property are taxable where the property is located; "land-rich" share gains where 50% or more of value derives from real estate are taxable in the country of the underlying property.
• Article IX (Real Property Income): rental income from immovable property is taxable where the property is located.
• Article X (Government Service): remuneration paid by a state to its employees is generally taxable only by the paying state.
• Article XI (Pensions): pensions and other similar remuneration paid to a resident of one territory are taxable only in that territory.
• Article XIII (Employment): employment income is taxable where the work is performed; the standard 183-day exception applies.
• Article XX (Mutual Agreement Procedure): dispute resolution within three years.
• Article XXIA (Treaty Anti-Abuse / Principal Purpose Test): introduced by the 2019 Protocol; treaty benefits can be denied where the principal purpose of an arrangement was to obtain those benefits.

The 1962 Convention does not contain a US-style saving clause. When the treaty gives Israel exclusive taxing rights over a private pension, the UK actually steps aside. This is one of the largest practical advantages a British oleh has compared with an American oleh.

How does the Statutory Residence Test decide if you are still UK-resident?

UK residence is determined by the Statutory Residence Test (SRT), introduced from 6 April 2013. Treaty residence kicks in only when both countries treat you as a resident under domestic law. For most olim who have moved their family to Israel and either sold or let the UK home, the SRT cleanly classifies them as non-UK-resident:

• Automatic non-residence (16-day test): if you spend fewer than 16 days in the UK in a tax year, you are automatically non-UK-resident. This is the cleanest outcome and the one most fully relocated olim should target.
• Automatic non-residence (46-day test): if you have been non-resident in any of the three preceding tax years and spend fewer than 46 days in the UK in the current year, you are automatically non-resident.
• Sufficient ties test: if neither automatic test applies, you fall into the ties test, which counts UK ties (family, accommodation, work, 90-day, country tie) and combines them with day counts on a sliding scale.

File Form P85 with HMRC on departure, finalise PAYE through your former employer, and keep contemporaneous travel records. The Statutory Residence Test is mechanical; what breaks olim is poor record-keeping, not the rules themselves.

Article XI: How Pensions Actually Work

Article XI gives exclusive taxing rights over private pensions to the country of residence. For an Israeli-resident British oleh, that means UK-source pensions (occupational, SIPP, personal pensions, the State Pension) are taxable only in Israel, not in the UK. During the 10-year exemption, Israel exempts them too, so the practical result is zero tax on most pension income for the first decade as an Israeli resident.

Two practical wrinkles:

• UK Government Service pensions remain UK-taxed. Article X overrides Article XI for civil service, military, NHS Crown employee, and police pensions. These remain taxable only in the UK regardless of residence, unless the recipient is also an Israeli national who is not a UK national, in which case Israel may tax them.
• Lump sums sit in a grey zone. The UK 25% tax-free Pension Commencement Lump Sum (PCLS) is tax-free in the UK as a matter of UK domestic law. From the Israeli side, the lump sum is foreign pension income. During the 10-year exemption it is exempt in Israel regardless. After year 10, the Israeli treatment is more contested: the ITA may treat the lump sum as a capital payment falling outside Article XI’s "pensions and other similar remuneration", or as a lump-sum pension distribution taxable in Israel under section 9A or similar provisions. Many British olim with significant pension pots take the PCLS during the 10-year exemption for that reason. This is a high-stakes decision and should not be made without specific written advice.

What happens to your SIPP after aliyah?

A Self-Invested Personal Pension (SIPP) can remain open after you leave the UK. SIPP providers vary in their willingness to keep accounts open for non-UK residents; some will not allow new contributions or trades and effectively freeze the account. Practical points for British olim:

• Contributions stop at non-residence. Once you become non-UK-resident, new SIPP contributions are limited (broadly, £3,600 gross per tax year for up to five tax years after departure under the relevant-UK-individual rules). For most olim contributions effectively stop.
• Drawdown is taxable in Israel under Article XI. Periodic SIPP withdrawals to an Israeli resident are pension income for treaty purposes and taxable only in Israel; during the exemption window, exempt in Israel.
• QROPS to Israel rarely makes sense. There is no QROPS-recognised Israeli vehicle for most olim, and unauthorised transfers face 25% UK overseas transfer charges plus tax. The mainstream answer is to leave the SIPP in the UK and draw it as an Israeli resident.
• Provider compliance. Tell your SIPP provider when you become non-UK- resident. Some providers issue a P85-style cessation; others ask for proof of Israeli tax residence to apply the treaty rates.

Dividends, Interest and Royalties

The 2019 Protocol modernised the withholding-rate rules. Under the in-force treaty:

• Dividends (Article VI): 5% withholding if the recipient is a company that has held at least 10% of the paying company’s capital throughout a 365-day period; 15% in other cases; exempt where the beneficial owner is a recognised pension scheme. To claim the treaty rate, an Israeli-resident shareholder typically provides the UK or Israeli payer with an HMRC certificate of residence or an Israeli equivalent.
• Interest (Article VII): 5% on interest paid in respect of a loan made by a bank; 10% in other cases. Interest paid to a Contracting State, a political subdivision, the central bank, or a recognised pension scheme is generally exempt at source.
• Royalties (Article VIII): taxable only in the country of residence; source-state withholding is eliminated.

For a UK oleh holding shares in a UK PLC, the practical effect is that UK dividends paid to an Israeli resident generally come without UK withholding (the UK does not impose withholding on outbound dividends as a matter of UK domestic law) and are reportable in Israel. During the 10-year exemption, Israeli tax is zero on these dividends, so the cash flow is clean.

Capital Gains

Capital gains rules under Article VIIIA, post-2019 Protocol:

• Immovable property: gains on immovable property situated in one country are taxable in that country. UK olim who sell UK residential property after becoming non-UK-resident remain within the scope of UK Non-Resident Capital Gains Tax (NRCGT). The treaty does not relieve this; NRCGT applies regardless. NRCGT must be reported within 60 days of completion via HMRC’s online service.
• Land-rich shares: gains on shares of a company that derives more than 50% of its value (directly or indirectly) from immovable property in one country are taxable in that country.
• Other share gains: generally taxable only in the country of residence (Israel). During the 10-year exemption, Israel does not tax these gains; the UK does not tax non-residents on UK share gains in any case.
• Private residence relief. If you sell a UK home that was your main residence for the whole period of ownership before aliyah, principal private residence relief may eliminate UK CGT. Final-period relief was reduced to 9 months from April 2020; plan accordingly.

How is your UK rental income taxed after you move to Israel?

Article IX gives the UK exclusive taxing rights over UK rental income, even when the landlord is an Israeli resident. UK olim with UK rental property must:

• Register with the Non-Resident Landlord Scheme (NRLS) so that letting agents or tenants do not deduct 20% basic-rate tax at source. Form NRL1 is the relevant application.
• File a UK Self Assessment return each year reporting the rental income and claiming allowable deductions.
• Report the gross rental income on the Israeli return after year 10 (during the 10-year exemption it is exempt in Israel), with a UK-tax credit available against Israeli tax under Article XX of the treaty.

UK State Pension and National Insurance

UK State Pension entitlement is preserved across aliyah and can be drawn from Israel. The UK has a reciprocal social security agreement with Israel that generally provides for annual uprating of UK State Pension paid to Israeli residents, unlike the position in some Commonwealth countries where UK State Pension is frozen on emigration. Confirm current uprating status with the International Pension Centre on application; reciprocal arrangements are kept under review.

If your NI record has gaps, you can pay voluntary Class 2 or Class 3 contributions while non-resident to fill them. The economics are usually attractive: each year of voluntary contributions buys roughly 1/35th of the full new State Pension. Olim with 10 to 25 years of UK NI history should request a State Pension forecast (via the Government Gateway) and model the cost of topping up before deciding.

Practical Checklist for British Olim

• File Form P85 with HMRC on departure; obtain HMRC certificate of residence in Israel for treaty claims.
• If you own UK rental property, register with the NRLS via Form NRL1 to receive rents gross.
• Notify your SIPP and pension providers of non-UK residence. Ask whether they will continue to hold the account and what proof of Israeli tax residence they require.
• Plan PCLS timing: lump sum within the Israeli 10-year exemption window is materially cleaner than after.
• Capital gains: target gains on UK shares before becoming Israeli resident if possible (UK CGT may not apply once non-resident; Israeli tax may apply post-year-10). NRCGT on UK property is not avoidable through residence change.
• Voluntary NI contributions while abroad are usually high-value; request a forecast and model the top-up cost.
• Israeli-side: file the דוח שנתי (Doch Shenati) for olim who become resident on or after 1 January 2026, regardless of whether the income is exempt.

The treaty in force is the 1962 UK-Israel Double Taxation Convention as amended by the 1970 and 2019 Protocols, with the 2019 Protocol (in force from 13 December 2019) modernising dividends, interest, royalties, capital gains and dispute resolution. For British olim the picture is comparatively simple: the UK taxes on residence, not citizenship, so once you become non-UK-resident under the Statutory Residence Test, most UK income and gains stop being taxed by HMRC. There is no UK saving clause, no FBAR, no PFIC and no citizenship-based taxation. Article XI gives exclusive taxing rights over private pensions (occupational, SIPP, personal, and State Pension) to the country of residence, so an Israeli-resident oleh's UK pensions are taxable only in Israel, and during the 10-year new-resident exemption Israel does not tax them either, for a practical result of zero tax on most pension income for the first decade. The main exceptions stay UK-taxed: UK Government Service pensions under Article X, UK rental income under Article IX, and UK property gains under Non-Resident Capital Gains Tax. This is educational content, not tax advice; confirm any position with a UK Chartered Tax Adviser experienced with Israeli residents.