Costs, SDLT and tax

VAT on Part-Exchange and Land Swaps

PropertyVAT Team · Updated 21 October 2026 · 3 min read

Land swaps and part-exchanges feel like they should sit outside VAT, because no purchase price is paid. They do not. Each party is supplying land to the other, and consideration does not have to be money.

Two supplies, not none

In a straight swap — you transfer plot A to me, I transfer plot B to you — there are two supplies:

1. Your supply of plot A to me
2. My supply of plot B to you

Each follows its own VAT treatment, determined by the respective owner's position:

So one leg can be standard-rated and the other exempt. That is not a symmetry problem — it simply reflects two different properties with two different histories.

Valuation

Where consideration is non-monetary, the supply is generally valued by reference to the open market value of what is received.

Two practical consequences:

• Each party needs a defensible valuation. This is not a figure to pick for convenience; it determines the VAT each must account for.
• Valuations should be documented contemporaneously, by someone qualified, and retained. A connected-party swap with an unsupported valuation is a poor position to be in if questioned.

The funding problem

This is the part that catches people, and it has no elegant solution.

If both legs carry VAT, each party owes VAT to the other — and neither has received sale proceeds to pay it from.

On a swap of two £2m sites, both opted, each party faces £400,000 of VAT with no cash coming in. The VAT is recoverable on both sides, but it has to be paid first.

Options the parties usually consider:

• Settle net in cash, with each still accounting for and invoicing its own supply properly
• Fund the VAT, on the same basis as any other purchase
• Structure to avoid both legs being taxable, where the facts genuinely allow
• Time the transaction so the reclaims arrive as early as possible relative to VAT quarters

Netting the cash is common and sensible. It does not remove the obligation on each party to account for its own supply and issue a valid VAT invoice — the netting is a payment arrangement, not a VAT one.

Equality payments

Most swaps are not of equal value, so one party pays a balancing sum.

That payment is part of the consideration for the supply it relates to, and follows that supply's treatment. It does not create a separate transaction, and it does not change the analysis of the land element.

Part-exchange in development

Common where a developer takes a site in part-exchange, or where a landowner takes units in a completed scheme in exchange for land.

The analysis is the same in principle — two supplies, each valued and treated on its own terms. The complications come from timing, because the two legs often occur at very different points in the programme, with their own tax points.

Where one leg happens now and the other in two years, each falls into its own VAT period and the cash-flow consequences are quite different from a simultaneous swap.

What to establish

1. What is each party supplying, and what is each treatment?
2. Has either party opted to tax the land they are transferring?
3. What is the open market value of each leg, and who has valued it?
4. Will VAT be charged on either or both legs?
5. How will the VAT be funded, given no sale proceeds arise?
6. Will valid VAT invoices be issued by each party?
7. Do the legs complete simultaneously, or at different times?

Question five is the one to resolve before exchange. A VAT liability arising with no cash to meet it is a problem best identified in heads of terms rather than on completion day.

This guide is general information, not tax advice. Non-monetary consideration and valuation rules are technical — take specialist VAT advice before committing to an exchange.