Which part of the Instrument Flight Rules covers that ?
In the UK, Rule 33.
what clearance should be issued ?
I would suggest "not above..." whatever maximum level the p-i-c requests. The MSA, as such, is irrelevant.
Nothing fudged about it at all.
What exactly is the problem with a civil ATCO giving a military aircraft a Special VFR clearance (which would be in a
civil controlled CTR of course)? The request for clearance would originate from the pilot.
2 s