Ever heard of someone paying a huge tax just because they didn’t know a simpler workaround existed?
Yeah, it happens more often than you think.
When it comes to real estate development—whether it’s a private home or a massive commercial project—there are smart (and legal!) ways to sidestep unnecessary costs. In this post, we’re going to dive into a real example and unpack the juicy lesson behind it. If you’re building, planning to build, or even thinking about it—this could save you a small fortune.
🧱 The Hidden Cost Most Developers Miss: Betterment Levy (a.k.a. “Hetel Hashbacha”)
Let’s start with the basics. In Israel (and some other places), when a property increases in value due to a planning decision—like getting permission to build more square footage—you might have to pay what’s called a betterment levy.
🧠 What is a Betterment Levy?
It’s a tax you pay when the value of your property goes up because of a change in the zoning or planning rules. For example, if the local planning authority approves your request to build higher or bigger than usual, the property is now worth more. And guess what? The government wants a slice of that value jump.
Typically, this levy can be up to 50% of the property’s increased value. Yes, you read that right. Not a typo. Fifty.
🏗️ Real Case: Two Lots, One Vision… and One Big Mistake
A developer owned two adjacent plots of land and wanted to build one large commercial building spanning across both. Instead of creating two separate buildings, the goal was a single, unified structure.
Sounds straightforward, right?
Well, not quite.
🚧 What Are Building Lines (Kavei Binyan)?
In most city plans, buildings need to be a certain distance away from the edge of the plot—these are called building lines. They exist for things like light, air, access, and safety.
So if you have two separate plots, each has its own building lines. That means you can’t glue buildings together unless you get special permission.
The architect’s solution? Request a building-line exemption, also known as a zoning variance—basically asking the city for permission to ignore the standard spacing rule.
And it worked! They got approval to treat the boundary between the two plots as “zero distance”, meaning the building could stretch over both without separation.
Awesome, right?
Well… almost.
💸 The Twist: A Massive Betterment Levy
Because the city granted an exception (aka a “favor”), it triggered a betterment levy.
Now the property was considered to have jumped in value—just because the rule was bent. And so, the developer had to fork over a significant amount of money in taxes.
The kicker?
There was a better way.
🧩 The Alternative: Land Unification (No Tax Surprise!)
Instead of requesting a building-line exemption, the developer could have gone another route: merging the two plots into one unified plot.
This process is called a parcel unification or in Hebrew, “Ihud Halkaot.”
✅ Why is this smarter?
- When you unify plots officially (through a legal planning procedure), they become a single lot.
- On a single lot, there are no internal building lines between the original plots. So you can build right across.
- And here’s the best part: no betterment levy is triggered in this process—because you’re not requesting an exception. You’re simply adjusting the map.
💡 Same building. Same outcome. Drastically different tax bill.
🤯 The Takeaway: Sometimes It’s Not What You Do—It’s How You Do It
This isn’t just about this one case. The same idea applies to many other real estate scenarios:
- Requesting zoning changes, special permissions, or usage modifications (like converting a space from residential to commercial) often triggers extra taxes or fees.
- But alternative planning strategies can help you get the same result without triggering those taxes.
And here’s the real kicker: most people don’t know the difference.
Even some professionals jump straight into complex exceptions when simpler paths exist.
⚙️ Pro Tips for Smarter Building (and Saving)
Here’s how to avoid costly mistakes when planning a project:
🧭 Step-by-Step Thinking:
- Before requesting any exemption, ask:
- Is there another way to achieve the same result?
- Consult a planning-savvy expert who knows the nuances of the system—not just how to draw plans.
- Compare the tax impact of different approaches. What looks like a quick shortcut might cost you double in the long run.
- Understand the process of unifying lots if you’re working with more than one.
- Don’t rely only on your architect—get a second opinion from someone who knows land-use law and taxation.
🏁 Wrapping It Up
Whether you’re building your dream home or launching a commercial project, there’s always more than one way to get things done.
But here’s the golden rule:
The method you choose can be just as important as the outcome you’re aiming for.
Avoiding unnecessary levies and taxes doesn’t require shady tricks—it just takes smart planning and knowing the system.
TL;DR – Too Long; Didn’t Read
- Betterment levy is a tax on property value increase due to planning changes.
- A developer paid heavily after requesting a zoning exemption to build across two plots.
- The smarter alternative: legally unify the plots—no tax, same result.
- Always explore alternative procedures before asking for planning exceptions.
- The right advice can save tens or even hundreds of thousands.
💡 Take the Next Step:
Thinking about a project? Ask the right questions before submitting your plans. Not all professionals will tell you about these options—but they can save you a fortune.
Stay savvy. Stay strategic. And don’t pay more than you need to.
