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As average house price in London nears £500,000, stamp duty expected to rise to 36pc.

The cost of the average London dwelling is rapidly approaching the £500,001 mark, at which point the stamp duty banding changes from 3pc to 4pc on the purchase price of the house.

The value of a typical home in London rose 20pc over the year to May and is now valued at £492,000. Sitting within the 3pc stamp duty banding this would cost the buyer £14,760 in tax.

But London households, who are already facing record prices, a further increase of just 1.7pc to £500,364 would take their stamp duty bill to £20,014, an increase of 36pc – according to new analysis by the influential lobbying group, the Taxpayers Alliance.

According to new official Government data from the Office of National Statistics house prices in London are 2.2 times that of a home in the rest of the country where the average house price, excluding London, reached £223,000 in May, still below the 3pc threshold.

“House prices are rising rapidly in London and because of its ludicrous structure buyers’ stamp duty bills are rising even faster,” said Rory Meakin. “Stamp duty gets in the way of homeowners who need to move home for whatever reason as well as first time buyers trying to get on the housing ladder. Ultimately, stamp duty is indefensible and should be abolished but if ministers are reluctant then a meaningful cut is they least they should do to ease the burden.”

The Treasury will collect an extra £85 million in taxes just from properties moving across the £500,000 threshold in London, not including the increase at each of the other stamp duty levels as house prices across the country approach the 3pc marker – additional research from property agents JLL has revealed.

“As properties move into higher stamp duty levels, the increasing cost of moving can act as a brake of transactions,” said Adam Challis, head of residential research at JLL. “Average families will see more value from extending existing homes than moving to a new property. This may be good news for the Treasury, but it is a big problem for activity in the housing market.

Currently the controversial duty is applied in one of five bands: 1pc, 3pc, 4pc, 5pc or 7pc, based on the property’s price. The tiers operate as “slabs” whereby the higher rate applies to the whole sum.

So a property selling for £250,000 attracts 1pc duty or £2,500; whereas a £250,001 property – which is in the next band of 3pc – attracts a tax of £7,500.

This manner of applying tax has been criticised for distorting prices and means buyers are extremely sensitive to differences in prices over the thresholds.