Chancellor George Osborne said the 0.5 per cent tax levied on purchases of ETFs would be abolished from April 2014.
UK fund managers currently domicile their funds in countries like Ireland, Luxembourg to avoid the UK tax.
“This should ultimately increase consumer choice,” said Mark Johnson from BlackRock’s iShares, the world’s biggest ETF provider.
Despite boasting around $2.4 trillion of assets and 5,000 funds, no ETFs are currently domiciled in London, despite many being listed on the London Stock Exchange.
“The city will welcome this measure as an attempt to make the financial centre of London a more attractive place but the big question is to what extent London has missed the boat,” KPMG head of stamp taxes Sean Randall said.