RETT Exemption for Notarized Wills, Bequests and Inheritance in Saudi Arabia

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.

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.

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.

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.

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.