In this guide
Key difference: Spread betting returns are exempt from tax under UK law. Prediction market returns (from blockchain-based platforms such as Polymarket) may trigger CGT or Income Tax liability. For UKGC-regulated, tax-exempt event betting, Betfair Exchange provides closer alignment. For breadth of available markets and minimal fees, Polymarket through PolyGram is superior.
If you trade in the UK, you have two primary avenues to capitalise on accurate outcome predictions: spread betting (through FCA-licensed financial spread betting operators) and prediction markets (through Polymarket, Betfair Exchange, or Smarkets). Grasping these distinctions is essential for structuring your tax position and refining your trading approach.
What Is Spread Betting in the UK?
The UK's financial spread betting sector is served by FCA-authorised providers including IG, CMC Markets, and Spreadex. You stake a sum 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 asset type
- Tax-free returns: Spread betting is legally treated as gambling in the UK — returns carry no tax burden, whilst losses cannot reduce taxable income
- FCA authorised: Comprehensive investor safeguards, mandatory negative balance shield
- Markets: Financial assets (indices, currency, raw materials, equities) — excludes political or sports outcomes
- Bid-ask spread: Embedded cost (normally 1–3 pips on major currency pairs)
What Are Prediction Markets?
Prediction markets enable you to acquire YES/NO binary contracts tied to concrete real-world events. Primary platforms accessible to UK participants:
- Polymarket (via PolyGram): 8,400+ markets, blockchain-based USDC, ~1% effective cost, ambiguous regulatory standing
- Betfair Exchange: 500 markets, sterling-denominated, 5% commission, UKGC licensed
- Smarkets: 200 markets, sterling-denominated, 2% commission, UKGC licensed
Tax Treatment — The Critical Difference
Spread Betting: Tax-Free
All spread betting returns are free from Capital Gains Tax and Income Tax in the UK, provided your account is with an FCA-authorised spread betting provider. This represents one of the most valuable tax benefits available to UK retail investors. HMRC's published guidance confirms this treatment for financial spread betting activities.
Betfair Exchange / Smarkets: Tax-Free
Winnings from UKGC-licensed betting exchanges are equally tax-free — categorised as gambling income under the Gambling Act 2005. This positions Betfair and Smarkets as an optimal solution: prediction market functionality combined with unambiguous tax-free treatment.
Polymarket: Tax Uncertain
Polymarket returns do not neatly fit either the gambling exemption (absent UKGC licence) or the spread betting exemption (not an FCA-authorised financial spread betting service). HMRC could classify them as CGT or Income Tax liabilities. Consult our regulatory snapshot for further detail.
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 access to financial assets (FTSE 100, currency pairs)
- Tax-free status is paramount and regulatory certainty is essential
- Your focus is financial price movements rather than discrete event outcomes
- You require FCA negative balance safeguards
Choose Prediction Markets When:
- You possess genuine insight into particular real-world event forecasting (referendums, athletics, scientific breakthroughs)
- You favour a restricted-loss, binary framework (maximum loss equals your stake)
- You require entry to markets unavailable through spread betting platforms (governmental decisions, emerging technologies, meteorological events)
- Competitive pricing relative to established betting operators is a key concern
Best Combined Approach for UK Traders:
- Employ an FCA-regulated spread betting service (IG, CMC) for financial asset exposure where leverage and tax exemption are relevant
- Employ Smarkets or Betfair Exchange for UK electoral and sporting events — UKGC-regulated, tax-exempt, sterling-based
- Employ Polymarket via PolyGram for markets with no alternatives elsewhere (8,000+ international event contracts) — acknowledging the 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-exempt returns under separate UK regulatory frameworks. Betfair falls under gambling law; spread betting falls under financial speculation law — both tax-exempt, overseen by different authorities.
- Can spread betting firms offer political prediction markets?
- Certain providers do — IG Index and Spreadex provide election outcome spread bets (e.g. "Conservative seats at 200–210"). These qualify for tax exemption. Nevertheless, the range is considerably narrower than Polymarket's 249 UK-focused 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 trading, financial spread betting represents the sole FCA-regulated option — though it exclusively covers financial instrument valuations, not specific event outcomes.