However, although they may not have always been able to avoid it entirely, rich investors have long been able to hire expert tax accountants and attorneys to get round the tax laws and minimise tax liability. Unfortunately, this sort of legal tax avoidance has been the preserve of the very rich and well-connected among investors.

No longer now.

A relatively new investment product originated in the United Kingdom has turned that around in favour of private investors, big and small.

Enter financial spread betting.

In its purest sense, financial spread betting is simply a form of derivative trading, using a derivative instrument (namely, the spread bet) that mimics the price movements of an underlying financial instrument, such as individual stocks and shares, commodities, various currency pairs, stock market indices, and government bond benchmarks.

In this way, you can think of a stock spread bet as a derivative on a particular individual stock. Like standard derivative instruments, the value of the spread bet is based on the value of the specific instrument that it tracks.

For all practical purposes, the pricing is market-determined and driven by the price of the underlying market. Liquidity is essentially guaranteed as most brokers simply hedge positions in the cash market and spreads are relatively narrow.

This form of trading has a number of distinct advantages over conventional stock trading.

The first is relatively straight-forward. In the UK, share trading is subject to stamp duty which is 0.5% of the transaction value. Using spread bets avoids this cost, adding this gain straight to the bottom-line.

A second important advantage is the ease of multi-directional trading afforded by spreadbetting.

What I mean here is that unlike conventional share dealing where the requirements for short selling are particularly cumbersome, using spread bets, one is able to go short of an index, stock, commodity or currency in much the same way that one is able to go long. There is no added requirement or consideration. To go short, a spread bet trader simply reverses the order of trading transactions, selling first and then buying back at a lower price (if the market moves in your favour).

A big attraction of spreadbetting is the fact that under current legislation in the United Kingdom, profits are free of capital gains tax. Of course, this is only of value to you if you have trading profits to protect from the tax man in the first place.

The editor of the 'spreadbettrader' website (see author information below for link to spreadbettrader), a professional spread betting analysis website provides excellent assessments of profitable trading opportunities for earning substantial spread betting profits for those who are interested.

It goes without saying that for those who earn substantial returns on their investments, the ability to keep a further 40% of those returns (from potential tax savings for higher-income tax payers) is certainly attractive.

This tax-free feature has led to the rapid rate of growth that spread betting has enjoyed in the United Kingdom over the last five years.