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, you have two primary pathways to generate returns from accurate outcome forecasting: spread betting (through FCA-licensed financial spread betting operators) and prediction markets (through platforms such as Polymarket, Betfair Exchange, or Smarkets). Grasping these distinctions is essential for effective tax management and decision-making.
What Is Spread Betting in the UK?
The UK's financial spread betting sector comprises FCA-regulated providers including IG, CMC Markets, and Spreadex. You stake a sum per point shift in a financial asset (FTSE 100, forex, individual equities). Core features include:
- Leverage: Commonly ranges from 2:1 to 20:1 depending on the underlying asset
- Tax-free profits: Spread betting is legally treated as gambling in the UK — returns are exempt from tax, and losses cannot be claimed as deductions
- FCA regulated: Comprehensive investor safeguards, mandatory negative balance protection
- Markets: Financial instruments (indices, forex, commodities, equities) — excludes political or sports events
- Bid-ask spread: Embedded cost (usually 1–3 pips on major forex pairs)
What Are Prediction Markets?
Prediction markets enable you to acquire YES/NO binary contracts tied to actual real-world events. The main platforms accessible from the UK are:
- Polymarket (via PolyGram): 8,400+ markets, crypto (USDC), ~1% effective fee, uncertain legal standing
- 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 returns is free from Capital Gains Tax and Income Tax in the UK, as long as you maintain an FCA-authorised spread betting account. This represents one of the most valuable tax benefits available to UK retail investors. HMRC's published materials confirm this treatment for financial spread betting.
Betfair Exchange / Smarkets: Tax-Free
Winnings from UKGC-licensed betting exchanges are similarly exempt — classified as gambling income under the Gambling Act 2005. This positions Betfair and Smarkets as an optimal hybrid: prediction market functionality alongside transparent tax-free standing.
Polymarket: Tax Uncertain
Polymarket returns sit in a murky zone — they don't qualify for the gambling exemption (lacks UKGC authorisation) nor 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 UK tax guide.
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, forex)
- Tax-free treatment is critical and regulatory certainty is paramount
- Your focus is on financial price dynamics rather than discrete event outcomes
- You require FCA-mandated negative balance safeguards
Choose Prediction Markets When:
- You possess expertise in forecasting particular real-world occurrences (referendums, sporting contests, scientific developments)
- You favour a bounded-loss, binary framework (maximum loss equals your stake)
- You need access to event categories unavailable through spread betting (government decisions, blockchain developments, meteorological events)
- Cost efficiency relative to conventional betting operators matters
Best Combined Approach for UK Traders:
- Deploy an FCA-regulated spread betting account (IG, CMC) for financial instrument positions where leverage and tax efficiency are crucial
- Deploy Smarkets or Betfair Exchange for UK-focused sports and political events — UKGC-regulated, tax-free, GBP-denominated
- Deploy Polymarket via PolyGram for niche 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 financial spread betting platforms (FCA-regulated). Both deliver tax-free returns through separate UK regulatory structures. Betfair falls under gambling law; spread betting falls under financial speculation — both tax-exempt, different supervisory bodies.
- 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 returns are tax-free. Nonetheless, selection remains significantly 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 functions identically. For leveraged event-based trading, financial spread betting remains the sole FCA-regulated option — though it only covers financial instrument pricing, not specific event outcomes.