The Inheritance Exemption: What It Covers
The distribution of a deceased estate to heirs according to their legal shares under Islamic inheritance law is exempt from RETT. This is Article 3(1) of the RETT Implementing Regulations, and the rationale is clear: distributing an estate among heirs within their entitlements is not a “transfer” in any meaningful commercial sense — it is the legal recognition of ownership rights that arose upon death.
The exemption covers real estate transactions resulting from the division of a deceased person’s estate, whether from the deceased to the heirs, or among the heirs themselves — provided the distribution is within the limits of each heir’s legal share as confirmed by the inheritance certificate (wathiqat al-wuratha).
Critically, the real estate must still be registered with ZATCA through the RETT portal and exemption documentation obtained before the Notary Public will process the transfer without RETT payment. Exemption from RETT does not mean exemption from registration.
The Boundaries of the Exemption
The inheritance exemption is limited to the division and distribution itself — it does not extend to any transactions that occur before or after the estate distribution that fall outside those legal shares.
- Sale before distribution: If heirs sell estate real estate before distributing it among themselves — for example, selling the deceased’s house to raise cash to divide — that sale is fully taxable at 5% RETT. The property has not yet been allocated to its heirs; a sale of undistributed estate property is a commercial disposal.
- Sale after distribution: Once an heir receives their allocated portion through the distribution, any subsequent sale of that inherited property is a standard taxable RETT event at 5%.
- Sale between heirs of their shares: If one heir wishes to buy out another heir’s share of the estate, that is a taxable sale — not a distribution. RETT at 5% applies to the value of the share transferred.
This is the most common inheritance RETT mistake in practice. When one heir takes a specific asset (such as the family house) and the value of that asset exceeds their legal inheritance share, the other heirs must be compensated for the excess. That compensation — the amount by which the house’s value exceeds the heir’s legal share — is treated as a taxable real estate disposal. RETT applies on the excess value at 5%.
Example: An estate includes a house worth SAR 3.5 million. There are four heirs with equal shares of SAR 875,000 each. One heir takes the house and pays SAR 2,625,000 to the other three. That SAR 2,625,000 payment represents the acquisition of their combined shares — and is a taxable RETT event at 5% = SAR 131,250.
Worked Example — Estate Distribution with Compensation
Background
Ibrahim Al-Mansouri passes away, leaving an estate that includes a residential villa in Riyadh with a fair market value of SAR 4,000,000. He has four heirs: his wife (entitled to one-eighth = SAR 500,000) and three sons (entitled together to the remaining seven-eighths = SAR 3,500,000 in aggregate, or approximately SAR 1,167,000 each).
Scenario A — Distribution Within Shares
The estate is distributed among all heirs in proportion to their legal shares. The wife and sons each receive a co-ownership interest in the villa equal to their inheritance fraction. No cash changes hands. The distribution is notarized.
RETT: Exempt. Registration with ZATCA is required to obtain the exemption documentation.
Scenario B — One Son Takes the Whole Villa
The eldest son Saeed agrees with the other heirs to take the entire villa and compensate the others. He pays his mother SAR 500,000 and each of his two brothers SAR 1,167,000 (total outgoing: SAR 2,834,000).
RETT Analysis: The distribution of Saeed’s own inherited share (SAR 1,166,000 value) is exempt. The acquisition of his mother’s and brothers’ shares in exchange for cash is a taxable event. RETT = SAR 2,834,000 × 5% = SAR 141,700. Saeed is the assignee/buyer for the taxable portion — the tax obligation sits primarily with the selling heirs (his mother and brothers) as assignors, though in practice Saeed typically bears the cost contractually.
The ZATCA Registration Process for Inheritance Transfers
Even where the inheritance distribution is fully exempt, the transaction must be registered with ZATCA. The process:
- The heirs (or their representative) access the RETT service on the ZATCA portal.
- The inheritance certificate (issued by the competent authority confirming the heirs and their legal shares) must be available.
- Transaction details are entered — the real estate, the parties, the nature of the transaction (estate division), and the declared value.
- ZATCA issues an exemption confirmation — this confirmation is presented to the Notary Public to allow the title transfer to proceed without RETT payment.
- The exemption documentation and all related records must be retained for five years.
Frequently Asked Questions
- Distribution of a deceased estate to heirs within their legal shares is exempt from RETT — but registration with ZATCA and an exemption certificate are still required before notarization.
- The exemption does not cover sales before distribution, sales after distribution, or buyouts between heirs.
- Where an heir takes an asset worth more than their legal share and compensates the others, the compensation amount is a taxable RETT disposal at 5%.
- Bequests (wills) to non-heirs are taxable events — they are not covered by the inheritance exemption.
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Grounded in the RETT Law (Royal Decree No. M/84, effective 10 April 2025), Implementing Regulations (ZATCA Board Resolution No. 01-03-25, 24 March 2025), and ZATCA’s Detailed Guideline Version 6 (May 2026). For informational purposes only. dariba.co is an independent knowledge platform.
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