A father gifts a residential plot he owns outright to his son, and the transfer is properly certified with the competent authorities as a gift between relatives. Two years later, the son sells that same plot to a family friend who does not qualify as a relative of the father within the degree required for the exemption. Under the Real Estate Transaction Tax (RETT) exemption for gifts between relatives, what is the consequence of the son's later sale?
- No consequence at all; once the original gift qualified for exemption, every future sale of that same property by any subsequent owner is permanently RETT-exempt
- The son's sale is automatically exempt because he is only reselling property he received as a gift, and RETT only ever taxes the very first transfer of a given property
- The original gift becomes retroactively taxable only if the son had sold the plot on the very same day he received it; a sale two years later has no effect on the original exemption
- Because the son disposes of the property to a non-qualifying person within three years of the certified gift, the anti-avoidance condition attached to the family-gift exemption is breached, exposing the arrangement to RETT that the exemption would otherwise have avoided
Why D? And why not the others?
Correct answer: D. Because the son disposes of the property to a non-qualifying person within three years of the certified gift, the anti-avoidance condition attached to the family-gift exemption is breached, exposing the arrangement to RETT that the exemption would otherwise have avoided
The RETT exemption for a gift of real estate between relatives up to the qualifying degree of kinship carries an anti-avoidance condition: if the recipient disposes of the gifted property to a person who does not qualify as a relative within that degree within three years of the certified gift, the condition is breached and the arrangement becomes exposed to RETT that the exemption would otherwise have kept away, precisely to stop a taxable sale from being disguised as an exempt gift followed by a quick resale. The option describing a permanent, unconditional exemption that follows the property forever is wrong because the relief is conditional on the three-year holding behavior of the immediate recipient, not a blanket protection transferring automatically to every future transaction regardless of circumstances. The option claiming RETT only ever applies to a property's very first transfer is wrong because RETT can apply again to a later disposal by a subsequent owner unless that later disposal independently qualifies for its own exemption. The option limiting the anti-avoidance test to a same-day resale is wrong because the condition is measured over a three-year window, and a sale two years after the gift falls well within that window rather than outside it.
Source: Real Estate Transaction Tax Law and Implementing Regulations; ZATCA Real Estate Transaction Tax guideline, exemption for gifts between relatives