UK Set To Abolish Tax On Non-Resident ETFs

by Jason Gorringe, Tax-News.com, London

01 December 2006

The United Kingdom's government is reportedly set to abolish stamp duty on non-resident exchange traded funds (ETFs) in an effort to boost London's competitiveness as an international financial hub.

According to a report in the Financial Times, Chancellor of the Exchequer, Gordon Brown will confirm that the tax on share gains will be scrapped for these types of ETFs in his pre-Budget speech, which he is due to deliver to the House of Commons on December 5.

The move is likely to be welcomed by the City, although the investment community has long campaigned for a total repeal of stamp duty on share profits, which is charged at a rate of 0.5%, warning that London will eventually lose out to rival financial centres where such taxes have largely been abolished.

Exchange Traded Funds are a relatively new addition to the equity investment sphere. ETFs were first developed in the United States in the early 1990s as a means to give investors access to a basket of stocks at a low cost. They have since caught on in Europe and Asia and are fast becoming a mainstream investment vehicle; the global market is now said to be worth US$500 million, having grown by about 27% in the past year, according to the FT.

ETFs are usually linked to a particular index, for example the Dow Jones Industrial Average, the Standard & Poor’s 500, or London’s FTSE 100. They may track a certain sector within these indices, like, for example, technology companies, mining companies or pharmaceutical firms, but they do so within a single share.

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