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 outcome forecasts: spread betting (through FCA-licensed financial spread betting providers) and prediction markets (through Polymarket, Betfair Exchange, or Smarkets). Grasping these distinctions is essential for effective tax strategy and decision-making.
What Is Spread Betting in the UK?
The UK's financial spread betting sector is administered by FCA-regulated operators such as IG, CMC Markets, and Spreadex. You stake a sum per point shift in a financial asset (FTSE 100, currency pairs, individual equities). Principal features include:
- Leverage: Ranges from 2:1 to 20:1 contingent on the asset type
- Tax-free profits: Spread betting carries the legal status of gambling in the UK — winnings incur no tax liability, and losses cannot be claimed as deductions
- FCA regulated: Comprehensive investor safeguards, mandatory negative balance protection
- Markets: Financial assets (indices, currency, raw materials, equities) — excludes political or sports forecasting
- Bid-ask spread: Inherent transaction cost (usually 1–3 pips on major currency pairs)
What Are Prediction Markets?
Prediction markets enable you to acquire YES/NO binary contracts tied to actual real-world occurrences. Primary UK-available platforms include:
- 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
All spread betting returns are exempt from Capital Gains Tax and Income Tax in the UK, provided you maintain an FCA-authorised spread betting account. This represents one of the most substantial tax advantages open to UK retail investors. HMRC's published guidance on financial spread betting affirms this treatment.
Betfair Exchange / Smarkets: Tax-Free
Winnings from UKGC-licensed betting exchanges are also free from tax — classified as gambling income under the Gambling Act 2005. This positions Betfair and Smarkets as an optimal solution: prediction market functionality PLUS transparent tax-free treatment.
Polymarket: Tax Uncertain
Polymarket returns do not fit neatly into either the gambling exemption (lacks UKGC authorisation) or the spread betting exemption (not an FCA-authorised financial spread betting firm). HMRC could potentially categorise them as CGT or Income Tax liabilities. Consult our detailed analysis of alternative platforms for further context.
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 markets)
- Tax-free status is paramount and you require regulatory certainty
- Your focus is financial price movements rather than discrete occurrences
- You value FCA-backed negative balance safeguards
Choose Prediction Markets When:
- You possess demonstrable skill in predicting particular real-world events (referendums, sports, scientific outcomes)
- You favour a capped-loss, binary framework (maximum loss equals your stake)
- You require exposure to markets unavailable through spread betting (geopolitics, blockchain events, meteorological outcomes)
- Minimising fees relative to conventional wagering operators is a key objective
Best Combined Approach for UK Traders:
- Employ an FCA-regulated spread betting account (IG, CMC) for financial instrument positions where leverage and tax-free treatment are significant
- Employ Smarkets or Betfair Exchange for UK-focused politics and sports — UKGC-regulated, tax-free, GBP-denominated
- Employ Polymarket via PolyGram for markets with no domestic equivalent (8,000+ international event contracts) — recognising 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 a financial spread betting service (FCA-regulated). Both deliver tax-free returns under separate UK legal frameworks. Betfair falls under gambling classification; spread betting falls under financial speculation — both tax-exempt, separate regulatory bodies.
- Can spread betting firms offer political prediction markets?
- Certain operators do — IG Index and Spreadex provide election outcome spread bets (for instance "Conservative seats at 200–210"). These are exempt from tax. The selection, however, pales in comparison to Polymarket's 249 UK-focused political contracts.
- Is there a UK prediction market with leverage?
- Not conventionally. Betfair and Smarkets operate on a binary basis (stake only). Polymarket is binary. For leveraged event exposure, financial spread betting remains the sole FCA-regulated choice — although it covers financial instrument prices exclusively, not specific event outcomes.