Gifting property within a family feels like it should be tax-free. In Saudi Arabia it often is — but the exemption is narrower and more conditional than people assume, and it comes attached to a three-year tripwire that can reach back and tax a gift you thought was settled years ago.
This is one of the most misapplied exemptions in the entire RETT regime. The errors are predictable: gifting to a relative who is one degree too far out, dressing up a sale as a gift, or re-gifting the property too soon. Each of those mistakes converts an exempt transfer into a 5% liability — sometimes for a person who had nothing to do with the original gift. Let’s get the rules exactly right.
The Core Rule
Under Article 3 of the RETT Law and Regulations (and Section 5.1.7 of ZATCA’s Guideline), a real estate transfer by way of a notarized gift (Hibah) to a spouse or a relative up to the third degree is exempt from RETT.
Two words in that sentence carry all the weight: notarized and gift.
- Notarized. The gift must be documented before a notary. An informal family arrangement does not qualify.
- Gift. It must be a genuine transfer without consideration. The moment money changes hands, it is a sale — and a sale to a relative, however close, is fully taxable.
Get either wrong and the exemption simply does not exist. There is no partial credit.
The Family Degree Map — Exactly Who Counts
The Regulations define “relatives up to the third degree” precisely. This is not a matter of how close you feel to someone; it is a fixed list. A spouse is included separately. Beyond that:
| Degree | Relatives included |
|---|---|
| First degree | Father, mother, son, daughter |
| Second degree | Brother, sister, grandfather, grandmother, grandchildren (grandson, granddaughter, including son/daughter of a daughter) |
| Third degree | Paternal uncle, paternal aunt, maternal uncle, maternal aunt; nephews and nieces (son/daughter of a brother, son/daughter of a sister) |
A cousin is not within the third degree. Neither is an in-law, a friend, or a more distant relative. A gift to any of them is a fully taxable real estate transaction at 5%, exactly as ZATCA confirms in Example 27 — a notarized gift of land worth SAR 1,000,000 to a cousin attracts RETT of SAR 50,000.
Gift Versus Sale — A Distinction ZATCA Takes Literally
The exemption is for gifts, not for transfers to relatives generally. ZATCA’s Examples 26 and 28 sit side by side to make the point.
A person gifts land worth SAR 1,000,000 to his full brother, with no consideration, and notarizes it. The donor is exempt from RETT — the transfer is a notarized gift to a relative within the third degree.
A person sells land to his father for SAR 1,000,000 and notarizes the transfer. Even though the father is a first-degree relative, this is a sale, not a gift — so RETT of SAR 50,000 (5% × SAR 1,000,000) is due before the transfer completes.
The relationship was not the problem in Example 28. The consideration was. The exemption protects gratuitous family transfers, not intra-family sales.
The Three-Year Trap
Here is the condition that catches people. For the gift exemption to stay valid, the donee must not, within three years of the gift’s notarization, transfer the gifted property to a person who would not have qualified for the exemption had the original donor gifted to them directly.
Read that twice, because the test is anchored to the original donor — not to the current holder. The question is always: “If the first donor had given this property straight to the eventual recipient, would that have been exempt?” If the answer is no, the re-disposal within three years breaks the condition.
When the condition breaks, the exemption on the first gift is revoked and RETT becomes due on that original transaction — backdated, with fines accruing from the original date.
ZATCA’s Example 29 — The Re-Gift That Unravels
This is the example every advisor should be able to explain on demand, because it shows the trap operating in real time.
Step 1. A person (the “Original Donor”) gifts land with a fair market value of SAR 4,000,000 to his grandfather, without consideration, and notarizes it. The grandfather is a second-degree relative, so this first gift is exempt.
Step 2. Four months later, the grandfather gifts the same land to his other grandson — who is the cousin of the Original Donor — again without consideration.
Result. The grandfather re-disposed of the property within the three-year window to someone who would not have qualified if the Original Donor had gifted to them directly (a cousin is outside the third degree). That breaches the condition. The exemption on the first gift is revoked, and RETT is imposed on that first transaction: SAR 200,000 (5% × SAR 4,000,000), dated back to the original gift.
Notice who pays. The tax lands on the first transaction — the Original Donor’s gift — even though it was the grandfather’s later decision that triggered it. The donee’s freedom to deal with the property is restricted for three years precisely because the original exemption depends on it.
Working the Test in Other Situations
To see how the anchoring-to-the-original-donor rule behaves, run a few variations.
Re-gift to a qualifying relative of the original donor
Suppose a father gifts a villa to his son (first degree — exempt). Within three years, the son gifts it to the father’s daughter (the son’s sister). Would the original donor — the father — have qualified gifting directly to his daughter? Yes; a daughter is first degree. So the re-gift does not breach the condition, and the original exemption holds.
Re-sale to an outsider
Same father-to-son gift. Within three years, the son sells the villa to an unrelated buyer. A sale to an outsider is plainly something that would not have been exempt for the father directly. The condition is breached, the original gift’s exemption is revoked, and RETT is backdated to the father’s gift. (The son’s own sale is, separately, a taxable transaction in its own right.)
Holding past three years
If the donee simply holds the property for more than three years from notarization, the condition is spent. After that point, the donee can deal with the property freely — though any onward sale is, of course, its own taxable event.
A gift between relatives generally does not raise VAT, because it is a gratuitous transfer outside the course of an economic activity. But where the donor is a business and the property is part of its assets, consider whether the disposal interacts with the donor’s VAT and Zakat/CIT position before assuming the transfer is entirely tax-neutral.
Frequently Asked Questions
- A notarized gift to a spouse or relative up to the third degree is exempt — both “notarized” and “gift” are essential.
- The third-degree line is fixed: parents/children (1st), siblings/grandparents/grandchildren (2nd), uncles/aunts/nephews/nieces (3rd). Cousins and in-laws are out.
- A sale to a relative is taxable — the exemption only protects gratuitous gifts.
- The three-year condition is anchored to the original donor: would they have qualified gifting directly to the eventual recipient?
- Breach the condition and RETT is backdated to the original gift, with fines — ZATCA Example 29 puts this at SAR 200,000 on a SAR 4,000,000 gift.
Also in this series
This article reflects the RETT Law (Royal Decree No. M/84), its Implementing Regulations (Board Resolution No. 01-03-25 dated 24 March 2025), and ZATCA’s Detailed RETT Guideline (Section 5.1.7, Examples 26–29). It is for informational purposes only and does not constitute legal or tax advice. Exemption conditions are fact-specific and subject to ZATCA’s interpretation; confirm any position with current ZATCA guidance or a qualified Saudi tax advisor before relying on it. dariba.co is an independent platform with no consulting relationships.
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