RETT Exemption on Documented Gifts to Spouses and Relatives: Article 3(a)(7) Explained

Families in the Kingdom move property between generations and between spouses all the time: a father gifting land to his children, a husband putting the family home in his wife’s name, a grandmother giving an apartment to a grandchild. Article 3(a)(7) keeps those gifts free of RETT.

It is also one of the most heavily policed exemptions in the Regulations. It contains a three-year anti-avoidance rule designed to stop a gift to a relative being used to route property, tax-free, to an outside buyer.

The Provision: Exact Text

“Relatives up to the Third Degree” is defined in Article 1 of the Regulations:

• First degree: father, mother, son, daughter.
• Second degree: brother, sister, grandfather, grandmother, grandchildren.
• Third degree: uncles, aunts, nephews and nieces.

ZATCA’s Detailed RETT Guideline covers this exemption at section 5.1.7.

What It Means in Plain English

The gift RETT exemption for relatives means that if you gift real estate, through a documented gift, to your spouse or to a relative up to the third degree, no RETT is due. If the recipient then passes the property within three years to someone you could not have gifted it to tax-free, your original gift becomes taxable.

Breaking Down the Provision

“Husband, wife or any of the relatives up to the third degree”

The relationship is measured between the donor and the recipient. The Guideline’s list makes clear that grandchildren through daughters, and nephews and nieces through sisters, are included alongside those through sons and brothers.

People who are not included:

• cousins (ZATCA’s Example 27 says so expressly);
• in-laws, such as a son-in-law, daughter-in-law or the spouse’s parents;
• step-children and step-parents, unless they are otherwise related by blood within the three degrees;
• great-grandchildren and great-uncles, who are beyond the third degree.

“By way of a documented gift (Hibah)”

Two requirements follow from this:

• A gift. No price and no consideration. A sale to a relative, even at a family discount, is not a gift.
• Documented. The gift must be formally documented, which in practice means notarized through the notary or the Ministry of Justice platforms. An informal family understanding is not enough.

The three-year rule

The exemption is lost if:

1. the recipient disposes of the gifted property;
2. within three years of the date the gift was documented;
3. to a person who would not have qualified had the original donor gifted the property to them directly.

The test is whether the original donor could have made the gift directly, not the relationship between the recipient and the next person. A disposal to someone who is inside the donor’s circle does not trigger the rule.

ZATCA’s Position

The Guideline works through four examples:

• Example 26. Land worth SAR 1,000,000 is gifted to a full brother. Exempt.
• Example 27. The same land is gifted to a cousin. Taxable, because a cousin is not a third-degree relative. The donor pays SAR 50,000.
• Example 28. Land is sold to the seller’s father for SAR 1,000,000. Taxable, because it is a sale, not a gift.
• Example 29. A person gifts land worth SAR 4,000,000 to his grandfather. Four months later, the grandfather gifts it to another grandson, who is the original donor’s cousin. The second gift breaks the condition, because a cousin is outside the original donor’s circle. The exemption on the first gift is revoked and RETT is due on it.

Worked Examples

Example 1: Father to daughter

A father gifts an apartment worth SAR 1,800,000 to his daughter. The gift is documented at the notary. It is exempt, saving SAR 90,000.

Example 2: Daughter sells within three years

Eighteen months later, the daughter sells the apartment to an unrelated buyer for SAR 2,000,000.

• The sale is taxable in its own right. RETT of SAR 100,000 is payable by the daughter as seller.
• The buyer would not have qualified for a gift from the father, so the original gift becomes taxable. RETT of 5% × SAR 1,800,000 = SAR 90,000 is payable by the father as transferor.

Total RETT: SAR 190,000, instead of SAR 100,000 had the daughter waited until after the third anniversary.

Example 3: Re-gift within the donor’s circle

Instead, after 18 months the daughter gifts the apartment to her own son, who is the original donor’s grandson.

The grandson is a second-degree relative of the original donor, so he would have qualified for a direct gift. No breach. The daughter’s gift to her son is also exempt in its own right, as a first-degree gift.

Example 4: Re-gift to a spouse

Instead, the daughter gifts the apartment to her husband within the three years.

Her husband is the original donor’s son-in-law, who is not within the father’s circle. That breaks the condition. The father’s original gift becomes taxable at SAR 90,000, even though the daughter’s gift to her husband is itself exempt as a gift to a spouse.

Grey Areas

Compliance Checklist

1. Confirm the relationship falls within the spouse or third-degree list, and keep evidence such as the family record.
2. Document the gift formally. A sale or a gift with conditions does not qualify.
3. Register the transaction on ZATCA’s RETT portal before notarization, selecting the gift exemption.
4. Diary the third anniversary of the gift’s documentation date.
5. Agree in writing between donor and recipient on what happens if the property is passed on early, including who bears the tax.
6. If a breach occurs, file a correction request and pay within 30 days (Articles 11(b) and 5(A)(2)).

Common Mistakes

• Including cousins and in-laws. They are outside the definition.
• Selling at a family price. A sale is not a gift, however small the price.
• Selling within three years. The original donor’s exemption is lost on top of the tax on the sale.
• Focusing on the wrong relationship. For the three-year rule, the question is whether the original donor could have gifted to the new owner directly.

The Bottom Line

Article 3(a)(7) is generous within the family circle and strict at its edges. Gifts to spouses and close relatives are free of RETT. Sales are not, and an early onward transfer outside the original donor’s circle brings the original gift back into tax. Families should plan transfers with the three-year window in mind and keep the paperwork that proves each relationship.