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 have two primary routes to generate returns from accurate outcome forecasting: 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 selecting the right trading vehicle.
What Is Spread Betting in the UK?
In the UK, financial spread betting is delivered by FCA-regulated operators such as IG, CMC Markets, and Spreadex. You stake a fixed amount per point shift on a financial asset (FTSE 100, currency pairs, individual equities). Essential features include:
- Leverage: Commonly 2:1 to 20:1 contingent on the underlying asset
- Tax-free profits: Spread betting carries gambling classification in UK law — profits incur no tax, but losses cannot be claimed
- FCA regulated: Comprehensive investor safeguards, mandatory negative balance protection
- Markets: Financial assets (indices, currency, commodities, equities) — excludes political and sports outcomes
- Bid-ask spread: Embedded 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. 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 operate through an FCA-authorised spread betting account. This represents one of the most valuable tax incentives accessible to UK retail investors. HMRC's published guidance on financial spread betting corroborates this treatment.
Betfair Exchange / Smarkets: Tax-Free
UKGC-licensed betting exchange returns are similarly tax-free — categorised as gambling income under the Gambling Act 2005. This positions Betfair and Smarkets as optimal: prediction market functionality coupled with transparent tax-free treatment.
Polymarket: Tax Uncertain
Polymarket returns do not neatly fit the gambling exemption (lacks UKGC licence) or the spread betting exemption (not an FCA-authorised financial spread betting firm). HMRC could classify them as CGT or Income Tax liabilities. Consult 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 exposure to financial instruments (FTSE 100, currency pairs)
- Tax-free status is paramount and you require regulatory certainty
- You're trading financial price shifts, not discrete event outcomes
- You value FCA negative balance safeguards
Choose Prediction Markets When:
- You possess an informational advantage in forecasting particular real-world occurrences (political contests, athletics, research breakthroughs)
- You prefer a capped-loss, binary framework (maximum loss = your stake)
- You require access to contracts unavailable in spread betting (political events, digital asset outcomes, meteorological contracts)
- Cost efficiency relative to conventional bookmakers is a key criterion
Best Combined Approach for UK Traders:
- Use an FCA-regulated spread betting account (IG, CMC) for financial instrument exposure where leverage and tax-free status matter
- Use Smarkets or Betfair Exchange for UK political and sports outcomes — UKGC-regulated, tax-free, GBP
- Use Polymarket via PolyGram for contracts that don't exist elsewhere (8,000+ global event contracts) — accepting the tax uncertainty or documenting it carefully
FAQ — Spread Betting vs Prediction Markets UK
- Is Betfair Exchange classed as spread betting?
- No — Betfair Exchange is a betting exchange (UKGC-regulated), not a financial spread betting platform (FCA-regulated). Both deliver tax-free returns under separate UK legal regimes. Betfair is gambling; spread betting is financial speculation — both tax-free, distinct regulators.
- Can spread betting firms offer political prediction markets?
- Some do — IG Index and Spreadex offer election outcome spread contracts (e.g. "Conservative seats at 200–210"). These are tax-free. However, breadth is substantially narrower than Polymarket's 249 UK-relevant political contracts.
- Is there a UK prediction market with leverage?
- Not conventionally. Betfair and Smarkets are binary (stake only). Polymarket is binary. For leveraged event trading, financial spread betting is the sole FCA-regulated option — but coverage is restricted to financial instrument prices, not specific event outcomes.