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.
If you trade in the UK, two primary avenues exist for capitalising on accurate outcome forecasts: spread betting (through FCA-licensed financial spread betting operators) and prediction markets (through Polymarket, Betfair Exchange, or Smarkets). Grasping these distinctions is essential for optimising your tax position and selecting the right trading strategy.
What Is Spread Betting in the UK?
The UK's FCA-regulated spread betting sector includes operators such as IG, CMC Markets, and Spreadex. You stake a per-point amount on price movements in financial assets (FTSE 100, currency pairs, individual equities). Core features include:
- Leverage: Commonly ranges from 2:1 to 20:1 based on the asset category
- Tax-free profits: Spread betting is legally treated as gambling in the UK — winnings incur no tax, and losses cannot be offset
- FCA regulated: Comprehensive investor safeguards, mandatory negative balance protection
- Markets: Financial assets (indices, currency markets, raw materials, equities) — excludes political or sporting events
- Bid-ask spread: Embedded 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 events. The principal UK-accessible platforms are:
- 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
In the UK, all spread betting returns are exempt from both Capital Gains Tax and Income Tax when conducted through an FCA-authorised spread betting account. This represents one of the most valuable tax advantages accessible to retail traders in Britain. HMRC's official guidance on financial spread betting confirms this classification.
Betfair Exchange / Smarkets: Tax-Free
Winnings from UKGC-licensed betting exchanges are similarly tax-free — classified as gambling income under the Gambling Act 2005. Betfair and Smarkets therefore deliver the optimal combination: prediction market functionality alongside explicit 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 operator). HMRC could categorise them as CGT or Income Tax liabilities. Consult our UK tax guide 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 positions in financial instruments (FTSE 100, currency pairs)
- Tax-free status is paramount and regulatory clarity is essential
- Your focus is on financial price dynamics rather than discrete event outcomes
- You require FCA negative balance safeguards
Choose Prediction Markets When:
- You possess expertise in predicting particular real-world events (referendums, athletic competitions, scientific developments)
- You favour a capped-loss, binary framework (maximum loss equals your stake)
- You need access to markets unavailable through spread betting (geopolitics, blockchain events, meteorological forecasts)
- Minimising costs relative to conventional betting operators is a key objective
Best Combined Approach for UK Traders:
- Establish an FCA-regulated spread betting account (IG, CMC) for financial instrument exposure where leverage and tax-free status are priorities
- Deploy Smarkets or Betfair Exchange for UK political and sporting events — UKGC-regulated, tax-free, GBP-denominated
- Access Polymarket through PolyGram for markets with no alternative (8,000+ international event contracts) — while 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 regulatory frameworks. Betfair falls under gambling classification; spread betting falls under financial speculation — both tax-free, overseen by different authorities.
- Can spread betting firms offer political prediction markets?
- Certain operators do — IG Index and Spreadex provide election outcome spread bets (e.g. "Conservative seats at 200–210"). These qualify for tax-free treatment. Nevertheless, the range is substantially narrower than 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 functions similarly. For leveraged event-based trading, FCA-regulated financial spread betting remains the sole option — though it covers only financial instrument prices, not specific event outcomes.