Passing property to the next generation should not attract a transaction tax, and under the RETT regime it generally does not. Property that moves by inheritance, by the division of an estate among heirs, or under a lawful notarized will is exempt from the 5% charge. But the exemption has a precise edge: it covers the transfer of the inherited property to the heirs, not what the heirs do afterwards. A later sale between heirs, or an heir taking more than their lawful share and compensating the others, can each create a taxable event.
This article maps the three related routes — inheritance, division of an estate, and a notarized will — and uses ZATCA’s worked examples to show exactly where the exempt transfer ends and a taxable transaction begins.
Three Routes, One Principle
Property can pass on death or by testamentary instrument in three connected ways, and the Regulations exempt all of them at the point of transfer to the beneficiaries:
- Inheritance. Property passing to heirs under the rules of Islamic succession.
- Division of the estate. Heirs dividing inherited property among themselves according to their lawful shares.
- Notarized will (bequest). Property passing under a lawful, notarized will to the named beneficiary.
The unifying principle is that these are successions, not commercial transactions. No one is buying or selling — property is devolving according to law or a lawful will. That is why the transfer is exempt. The complications all arise when, after the succession, an heir does something that looks like a deal.
The Notarized Will (Bequest)
A transfer of real estate made under a lawful, notarized will is exempt from RETT. The two qualifiers matter: the will must be lawful (within the limits Sharia places on bequests) and it must be notarized — documented through the proper channel rather than asserted informally.
A person leaves real estate to a beneficiary under a lawful, notarized will. On the testator’s death, the property passes to the beneficiary under that will. The transfer is exempt from RETT — it is a bequest, not a sale.
Contrast this with a lifetime gift to a relative, which is governed by a different exemption with its own three-year clawback condition. A bequest takes effect on death under a will; a gift takes effect during life. They are different instruments with different rules — see the article on gifts to spouses and relatives for the lifetime-gift regime.
Dividing the Estate Among Heirs
When several heirs inherit property jointly, dividing it among themselves according to their lawful shares is part of the exempt succession. The estate is simply being allocated to those already entitled to it.
Heirs divide an inherited property among themselves in accordance with their lawful entitlements. This division is exempt from RETT — it is the distribution of the estate to its rightful heirs, not a transaction between buyers and sellers.
But Example 16 also marks two boundaries that are easy to cross without realising it.
Boundary one — an heir taking more than their share
If one heir takes property worth more than their lawful share and compensates the other heirs for the difference, that compensated excess is no longer pure succession. To the extent the heir is effectively buying out the others’ entitlement, the difference is treated as a taxable real estate transaction. The exempt part is the heir’s own lawful share; the taxable part is the additional value acquired for consideration.
An heir entitled to a one-third share takes the whole house and pays the other heirs cash for their two-thirds. The heir’s own third passes by exempt succession — but the two-thirds acquired by paying the co-heirs is, in substance, a purchase, and RETT applies to that compensated portion.
Boundary two — a later sale between heirs
Once the estate has been divided and each heir owns their share outright, a subsequent sale of property from one heir to another is an ordinary taxable transaction. The succession is complete; what follows is commerce.
What Heirs Do Afterwards
This is the single most important practical point in the whole area. The exemption covers the devolution of the estate to the heirs. It does not blanket every future dealing in the inherited property.
- An heir who later sells their inherited share — to a co-heir or to a third party — enters a taxable transaction. RETT applies to that sale on its own terms.
- An heir who takes more than their share and pays the others is taxed on the compensated excess, as above.
- An heir who later gifts the inherited property to a relative is then in the lifetime-gift regime, with its notarization requirement and three-year clawback condition.
Picture two stages. Stage one — property passing from the deceased to the heirs (inheritance, estate division, notarized will): exempt. Stage two — heirs subsequently transacting in that property for value: taxable on its own facts. The exemption lives entirely in stage one.
Documentation and Registration
Even though these successions are exempt, the transfers still need to be properly documented and registered. For a bequest, the will must be notarized for the exemption to apply — an informal or unnotarized will does not meet the condition. For inheritance and estate division, the transfer to the heirs is recorded through the proper channels, and the exemption is reflected there.
Keeping the paperwork clean has a forward-looking benefit too. If an heir later sells, the authorities will look at the chain: when the property was inherited, what each heir’s share was, and whether any compensated excess was already taxed at division. A well-documented succession makes the later, taxable transactions straightforward to assess — and prevents the heir from being taxed twice on the same value.
Frequently Asked Questions
No. Property passing to heirs by inheritance, and the division of an estate among heirs according to their lawful shares, is exempt from RETT (Example 16). It is a succession, not a sale.
No, provided the will is lawful and notarized. A transfer under a lawful, notarized will is exempt (Example 30). The will must be properly notarized for the exemption to apply.
Only the heir’s own lawful share is exempt. The portion taken in excess of that share, paid for by compensating the other heirs, is treated as a taxable purchase, and RETT applies to that compensated excess.
No. Once the estate is divided and each heir owns their share, a later sale between heirs is an ordinary taxable transaction. The exemption covers the original devolution to the heirs, not subsequent sales.
A bequest takes effect on death under a lawful notarized will and is exempt. A lifetime gift to a relative is a separate exemption with its own conditions, including notarization and a three-year clawback if the property leaves the qualifying family circle. They are different instruments with different rules.
- Inheritance, division of an estate among heirs, and transfers under a lawful notarized will are all exempt from RETT (Examples 16 and 30).
- The exemption covers the devolution of the estate to the heirs — not what the heirs do with the property afterwards.
- An heir taking more than their lawful share and compensating the others is taxed on the compensated excess; only their own share is exempt.
- A later sale of inherited property between heirs, or to a third party, is an ordinary taxable transaction.
- A will must be notarized for the bequest exemption to apply, and clean documentation of the succession protects heirs from double taxation on a later sale.
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This article is based on the Real Estate Transaction Tax Law (Royal Decree No. M/84), its Implementing Regulations (Board Resolution No. 01-03-25 dated 24/09/1446H), and ZATCA’s Detailed Guideline for RETT. It is provided for general information only and does not constitute tax or legal advice. dariba.co is an independent platform with no consulting relationships.
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