Land exchange

I've been asked to raise a VAT invoice and am trying to work out how much to raise it for.

We are disposing of a piece of land which has been opted to tax, it has been valued at £300,000. We are not receiving any cash for this, but instead getting another piece of land which apparently has not been opted to tax, this has been valued at £100,000. So all we have is an exchange of land, but at different valuations.

does anyone know how much output vat I need to account for?
  • Sounds like your not getting a great deal - any such barters that we've been involved in have been for an equal value, and if the land swaps aren't of equal value, we either exchange multiple land sites or the difference in cash.

    In this case, I'd say you'd want to charge VAT on the £300,000 opted to tax land value - £60,000 VAT only
  • Many thanks for this. I agree that this is most unusual, and the huge difference in valuations took me by surprise - and legal/property people too.
  • Remember you've also got an SDLT liability when exchanging interests in land, both parties being liable for SDLT on the 'consideration' given for their acquisition, usually the open market value of the land exchanged...
  • I would ask myself, what consideration am I receiving (in return for disposing of the £300k value land)?

    The consideration I am receiving is the land I am acquiring.

    In order to determine how much VAT to account for, I would need to value the land I am acquiring. If my valuation is £100k, I would account for VAT on this.
  • Hmm! The general VAT rule on barters, where no cash changes hands, is that the value of the barter consideration received by the respective parties is the subjective value placed thereon, noting in that context that the two sides of the barter must be for the same value if no cash is involved... I'm thinking that if the parties have agreed to exchange land and the open market value of one side of the exchange is £300k, that suggests the agreed subjective value of the consideration on both sides is £300k.... doesn't it?
  • Ian,

    I agree with you. If the Council would not sell its land for less than £300K cash, then it is prepared to pay £300K for the purchase of the other land.

    If it would in fact sell its land for less than £300K cash then its valuation of the Council owned land is probably not correct.
  • PS,

    how much VAT should the other party account for - assuming it agrees the valuation - ie sells land valued at £100K and receives in return land valued at £300K?

    your logic suggests he accounts for VAT of £60K? so Council invoices £20K vat and receives £60K vat?
  • The other party's land has not been opted to tax so the question of the land value, for VAT purposes, is only really relevant for the Council. If they invoice for VAT on the value of £300,000 they will invoice the other party for £60k VAT, and the other party will record and pay this. If the Council determines the acquired land to be the consideration they will invoice for VAT on £100,000 (£20k) and the other party will record and pay this.

    The other party would account for the VAT as determined by the supplier of the opted to tax land I,e. the council
  • In answer to DP's question.

    If the consideration the other vendor is receiving is the Council's land (which has been valued at £300k), it should in my view, record this as the value of the land it is selling.

    In the absence of an option to tax, the other vendor is making a £300k VAT exempt supply.

    In my experience, it's not uncommmon for one party to give away land of an apparent higher value in order to acquire other land. It may be part of a wider land assembly strategy to enable a much more valuable comprehensive development to take place.