In this guide
Key difference: Spread betting profits are tax-free under UK law. Prediction market winnings (from crypto-based platforms like Polymarket) may be subject to CGT or Income Tax. For UKGC-regulated, tax-free event betting, Betfair Exchange is the closer comparison. For market breadth and lowest fees, Polymarket via PolyGram wins.
As a UK trader, you face a choice between two separate avenues for profiting from accurate forecasts: spread betting (through FCA-licensed financial spread betting operators) and prediction markets (through Polymarket, Betfair Exchange, or Smarkets). Grasping these distinctions matters enormously for your tax obligations and overall trading approach.
What Is Spread Betting in the UK?
The UK's financial spread betting sector is served by FCA-authorised operators including IG, CMC Markets, and Spreadex. You place a stake per point shift in a financial asset (FTSE 100, currency pairs, individual equities). Core features include:
- Leverage: Ranges from 2:1 to 20:1 based on the underlying asset
- Tax-free profits: Spread betting is legally treated as gambling in the UK — returns are not taxed, but losses cannot be claimed
- FCA regulated: Strong consumer safeguards, mandatory negative balance protection
- Markets: Financial products (indices, currency markets, raw materials, equities) — excludes political or sporting outcomes
- Bid-ask spread: Embedded cost (normally 1–3 pips on major currency trades)
What Are Prediction Markets?
Prediction markets enable you to trade YES/NO binary contracts tied to actual real-world events. Leading options accessible to UK users:
- Polymarket (via PolyGram): 8,400+ markets, crypto (USDC), ~1% effective fee, grey zone legally
- Betfair Exchange: 500 markets, GBP, 5% commission, UKGC licensed
- Smarkets: 200 markets, GBP, 2% commission, UKGC licensed
Tax Treatment — The Critical Difference
Spread Betting: Tax-Free
Every pound of spread betting profit is exempt from Capital Gains Tax and Income Tax in the UK, provided your account is with an FCA-authorised spread betting operator. This represents one of the most valuable tax benefits available to UK retail investors. HMRC's official position supports this treatment for financial spread betting.
Betfair Exchange / Smarkets: Tax-Free
Winnings from UKGC-licensed betting exchanges are likewise tax-free — classified as gambling income under the Gambling Act 2005. Betfair and Smarkets therefore deliver the optimal combination: prediction market functionality PLUS explicit tax-free recognition.
Polymarket: Tax Uncertain
Polymarket returns sit in a murky zone — they don't qualify for the gambling exemption (lacks UKGC approval) or the spread betting exemption (not an FCA-authorised financial spread betting firm). HMRC could classify them as CGT or Income Tax liabilities. Refer to our comprehensive tax resource.
Comparison — Spread Betting vs Prediction Markets
| Factor | Spread Betting | Betfair/Smarkets | Polymarket (PolyGram) |
|---|---|---|---|
| UK Tax Status | Tax-free ✅ | Tax-free ✅ | Uncertain ⚠️ |
| Regulation | FCA ✅ | UKGC ✅ | Grey zone |
| Leverage | Up to 20:1 | None | None |
| Markets | Financial only | ~200–500 | 8,400+ |
| Max Profit | Unlimited (leveraged) | 2x (binary) | Up to 100x (low-prob YES) |
| Max Loss | Unlimited (leveraged) | Stake only | Stake only |
| GBP Deposits | Yes ✅ | Yes ✅ | Via crypto |
| Effective Costs | 1–3% spread | 2–5% | ~1% |
When to Use Spread Betting vs Prediction Markets
Choose Spread Betting When:
- You seek leveraged positions in financial assets (FTSE 100, currency pairs)
- Tax-free treatment is essential and you require regulatory certainty
- Your focus is on financial price movements rather than discrete occurrences
- You value FCA negative balance safeguards
Choose Prediction Markets When:
- You possess expertise in forecasting particular real-world events (referendums, athletics, academic breakthroughs)
- You prefer a bounded-loss, binary framework (maximum loss = your stake)
- You need access to specialised markets unavailable through spread betting (elections, digital assets, meteorological)
- Reduced costs relative to conventional betting operations matter to you
Best Combined Approach for UK Traders:
- Deploy an FCA-regulated spread betting account (IG, CMC) for financial instrument trading where leverage and tax-free returns are priorities
- Deploy Smarkets or Betfair Exchange for UK elections and athletics — UKGC-regulated, tax-free, sterling-denominated
- Deploy Polymarket via PolyGram for niche markets unavailable elsewhere (8,000+ worldwide event contracts) — acknowledging tax ambiguity or maintaining thorough records
FAQ — Spread Betting vs Prediction Markets UK
- Is Betfair Exchange classed as spread betting?
- No — Betfair Exchange operates as a betting exchange (UKGC-regulated), distinct from financial spread betting platforms (FCA-regulated). Both deliver tax-free returns through separate UK legal frameworks. Betfair falls under gambling law; spread betting falls under financial speculation — both tax-free, separate regulators.
- Can spread betting firms offer political prediction markets?
- Some do — IG Index and Spreadex provide election outcome spread bets (e.g. "Conservative seats at 200–210"). These are tax-free. Market selection remains substantially narrower than Polymarket's 249 UK-related political contracts.
- Is there a UK prediction market with leverage?
- Not conventionally. Betfair and Smarkets operate on binary terms (stake only). Polymarket operates on binary terms. For leveraged event-based trading, financial spread betting represents the sole FCA-regulated option — though it covers only financial instrument prices, not specific event outcomes.