Just considering pre Finance Act 2011 transactions – it seems that HMRC are taking the position that when the chargeable consideration was market value it implicity took into account VAT by virtue of para 2 of Sch 3. Does anyone think they are wrong?
I thought that current HMRC policy is that market value does not include VAT. SDLTM 04140 states that: “The market value of an asset does not include VAT even if VAT is chargeable on the transfer of the asset. This is because market value is based on a hypothetical transaction, not on the actual transaction.” I understand that the new exchange rules are in part intended to deal with the perceived abuse of avoiding SDLT on the VAT element of an exchange which previously was taxed only on market value.
HMRC recently argued in the context of applications for repayment of overpaid SDLT that the old para 5 Sch 4 (and other MV provisions) were subject to para 2 Sch 4. So although MV does not include VAT (as per SDLTM04140), any actual VAT must be added to MV under para 2. HMRC have since accepted that this is incorrect.
Recently there was concern that HMRC may consider that VAT actually payable should be included in exchanges. This was on the basis that while market value does not include VAT (as per SDLTM), para 2 Sch 4 nevertheless requires VAT actually paid to be included. For example, if market value is ?200 and actual consideration is ?100 plus VAT then, in an exchange, the chargeable consideration would be ?210. I understand that HMRC have backed down on this. This has nothing to do with the FA 2011 changes to the exchange rules.