The general election has certainly stirred up strong feelings among the electorate, and many political slogans have been thrown around. One of the strongest, with regards to social fairness, is the so-called ‘mansion tax’ put forward by the Liberal Democrats, and despite capturing the public imagination, some at the high end of the property market predict that such a tax would have a negative, turbulent effect. The tax itself would introduce a levy of 1% of properties costing more than £2 million, and it has certainly provoked debate. Critics of the scheme believe that owners of such properties will be served with yearly tax bills of £20,000 in addition to any other mortgage payments they may need to make.

Despite this, the Liberal Democrat manifesto specifies that the tax itself will only apply to  ‘the value of the property above the level of £2 million”. As a result, the restrictive effects on the prime market cited by critics of the scheme may not materialise. According to property analysts,estimates that homeowners that are faced with the tax will end up paying an average of £32,270 more per year in tax are somewhat hysterical.

Despite the fact that a Liberal Democrat election victory might be hard to imagine, a mansion tax of the type described will not be as dramatic as people fear in the event of a win for Nick Clegg of May 6th. Homeowners will, however, be faced with an additional £1,000 in tax for every £100,000 of the value of their property above £2 million – not so pleasant new for overseas investors holding hefty overseas mortgages or those home owners with recent re-mortgages to pay for further investments.

Some analysts feel that this could result in a market distortion as those owners with properties worth a little over the £2 million threshold will look to have them undervalued in order to circumvent the tax. Irrespective of the actual level of tax homeowners would need to pay, analysts are in agreement that, in regional terms, London and the South East of England would be most affected by the tax, with over three-quarters of the tax burden falling on homeowners in the Kensington and Chelsea areas alone.