The government denied last week that it was set to abolish stamp duty, despite rumours to the contrary, but clever investors are avoiding it anyway by trading overseas stocks, which is now as cheap as dealing in UK shares.

The tax on shares has recently become a hot political issue. The Association of British Insurers recently called for the 0.5 per cent tax on share purchases to be scrapped after a report by the economic think-tank Oxera found that it was damaging the economy, pensions and savings.

The tax raises £4 billion for the Treasury every year and cuts the typical occupational pension fund at retirement by between 1.5 per cent to 2.4 per cent, or £6,400 to £11,500.

The Conservatives have also called for the tax to be scrapped, and last week it looked for a moment like they might get their wish.

Clara Furse, chief executive of the London Stock Exchange, said: “Its abolition is firmly on the political agenda. It must now be a question of when and not if this tax is scrapped.”

The Treasury was quick to scotch suggestions that a move is imminent.

However, it is already possible to pay no tax on your share trades. Here’s how:

Overseas shares

Most foreign shares can be bought and sold without stamp duty. This could save you £50 on a trade worth £10,000, and dealing charges are as low as for domestic stocks.

Buying abroad could also diversify your portfolio. In the US, for example, there are far more good technology stocks – such as Google and Microsoft – than in Britain Many brokers offer access to overseas markets through the London Stock Exchange’s International Retail Service (IRS) – which is entirely stamp-duty exempt. This is a secondary market of about 300 US and European stocks traded in sterling but it is restricted to UK market hours.

For example, you can trade in US stocks over the phone through Hoodless Brennan, a stockbroker, only between 2.30pm and 4.30pm UK time, although you can trade online between 2.45pm and 8.55pm.

Hoodless Brennan charges the same flat fee of £7 a trade whether you buy British or international companies through the IRS, while The Share Centre, another stockbroker, charges £7.50.

Other brokers offer multi-currency accounts where you trade on the overseas market in the local currency.

TD Waterhouse, an online broker, said the number of investors trading this way had grown considerably since it slashed the cost to the same level as UK stocks three years ago, from less than 1 per cent of its business to about 10%.

It charges £12.50 for online trades in US stocks, or £11.95 if you deal more than seven times every three months – the same as for UK shares.

And you might also get a boost from currency fluctuations.

Jeremy Tigue, of F&C, a fund manager, said: “Sterling is very strong against most currencies right now, especially the yen and the US dollar, and there is a good chance that over the next decade this gap will narrow.”

If the dollar strengthens against sterling again, any profits on US shares will be worth more when converted into sterling – although there is always a risk that the American currency will go the other way.

Some brokers’ pricing structures for overseas trades are less straightforward, so read the small print.

Hargreaves Lansdown, for example, charges a flat rate of £10 on UK and IRS stocks, but it levies £20 a trade for international shares that are not IRS listed.

Exchange-traded funds

ETFs track the market in the same way as index funds, but like shares you can buy and sell them during the trading day and costs are a lot lower than typical funds – the Ishares FTSE 100 ETF costs just 0.4% a year. Unlike shares, however, you do not have to pay stamp duty on purchases.

ETFs track a range of global markets and industries, including exotic emerging markets such as Taiwan and Turkey, and even “soft” commodities such as coffee and corn. They are therefore one of the cheapest and most tax-efficient ways into more esoteric assets.

Dennis Hall, 47, a financial planner from west London, has five ETFs in his pension, including the Ishares FTSE UK Dividend Plus, Ishares MSCI Korea and the Ishares European Index fund.

He said: “I like the fact that ETFs are cheap investments, and that I do not have to pay stamp duty.”

You can get more details at etfsecurities.com or from your stockbroker.

Spread betting

More sophisticated investors with a high appetite for risk could consider spread betting instead.

You do not have to pay stamp duty or capital-gains tax on your profits and there are no dealing fees, but you could also lose more than your original stake.

A spread-betting firm quotes a price range, or spread, for most financial assets.

Spreadex.com, for example, was last week quoting a spread for BP of 583.5 to 587.5 expiring in June. If you think the shares will go up, you could bet £10 a point. If you closed your bet at 600, you would make £125 – entirely tax-free.

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