Gifting a Saudi Property to a Family Member: A Worked Transfer Example

Transferring a property to a relative without a sale still involves a transfer, costs and consequences. The arithmetic compares it with the alternatives.

An owner who wants a relative to have a property can transfer it now, leave it to pass on death, or sell it to them. The three routes have different costs, different timing and different consequences, and the comparison is usually made on instinct. This example sets out the arithmetic with illustrative figures so the trade offs are visible, while noting that the legal and Sharia treatment of each route is a matter for proper advice.

The situation

An owner holds an apartment and wants their adult child to have it. The owner is weighing transferring it now, leaving it to pass on death, or selling it to the child at a reduced price. The question is what each route costs and what each achieves, before any legal or Sharia considerations are addressed with an adviser.

Assumptions (illustrative)

• Assumed current value of the apartment: SAR 1,800,000.
• Assumed annual net rent currently received by the owner: SAR 90,000.
• Published headline Real Estate Transaction Tax rate of 5 per cent, to be confirmed with ZATCA, applied here for illustration.
• Assumed professional and transfer administration costs: SAR 22,000.
• Assumed period before the owner would otherwise have passed the property on: 15 years.
• Assumed value growth over that period: 3 per cent per year.

Step 1: Cost the transfer today

At the published headline rate of 5 per cent on SAR 1,800,000 the amount is SAR 90,000, plus SAR 22,000 of professional and administration costs, giving SAR 112,000.

The transfer costs about SAR 112,000 today. How the published rate applies to a transfer of this kind must be confirmed with ZATCA, since treatment depends on the nature of the transaction.

Step 2: Value the income the owner gives up

If the owner transfers now, they forgo SAR 90,000 a year. Over 15 years that is SAR 1,350,000 undiscounted, or roughly SAR 935,000 discounted at 5 per cent per year.

The income is the real cost of an early transfer, not the transfer amount. An owner who needs the rent cannot afford this route however attractive the certainty is.

Step 3: Project the value at the later date

SAR 1,800,000 growing at an assumed 3 per cent a year for 15 years is approximately SAR 2,804,000.

Any transfer amount assessed on value at the time of transfer is assessed on a much larger number later. Deferring the transfer defers the cost and increases it.

Step 4: Compare the transfer cost now against later

At 5 per cent on SAR 2,804,000 the amount would be about SAR 140,200, against SAR 90,000 today. The difference is roughly SAR 50,200, or about SAR 24,200 in present value terms at a 5 per cent discount rate.

Transferring early saves roughly SAR 24,200 in present value on this line alone. It is real but it is small compared with the SAR 935,000 of income forgone.

Step 5: Test retaining the income and transferring later

If the owner retains the property for 15 years, they receive about SAR 935,000 in discounted income and the eventual transfer costs about SAR 140,200 in nominal terms. Net of the income, this route is approximately SAR 911,000 better in present value than transferring today.

On pure arithmetic, retaining an income producing property and transferring later wins comfortably. The case for transferring now rests on certainty and on planning considerations rather than on cost.

Step 6: Test the sale at a reduced price route

If the child acquired at an assumed SAR 1,200,000, the owner receives SAR 1,200,000 now, the transaction amount at the headline rate on that figure is SAR 60,000, and the child acquires an asset assumed to be worth SAR 1,800,000.

This route produces liquidity for the owner and the asset for the child. How a transfer at below market value is treated is a question for ZATCA and a licensed adviser, and should be confirmed rather than assumed.

What changes the answer

• If the property produced no income, the case for transferring now strengthens sharply because the only cost is the transfer itself.
• If value growth were 6 per cent rather than 3 per cent, the later transfer amount rises to roughly SAR 215,700 and early transfer becomes more attractive.
• If the period were 5 years rather than 15, the income forgone falls to about SAR 390,000 and the comparison narrows considerably.
• If the owner has other income and does not need the rent, the forgone income is a transfer within the family rather than a true cost.
• If there are several children, a transfer of one property to one child raises questions that have nothing to do with this arithmetic and everything to do with proper advice.

What the numbers tell you

• The cost of transferring early is almost always the income given up, not the transfer amount.
• Deferring a transfer defers the cost and increases it with the value of the asset.
• An income producing property usually favours retention; a non income property favours early transfer.
• A sale at a reduced price is a third route with its own treatment that must be confirmed, not assumed.
• Where more than one child exists, the arithmetic is the least important part of the decision.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

Domira works on the ownership side of a Saudi property for owners based abroad: verifying title and boundaries, assessing the building, handling registration and handover, and managing the asset afterwards. For legal and tax questions, work with a licensed adviser; Domira will tell you plainly what the property itself supports.