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're trading in the UK, two primary routes exist for profiting from accurate outcome forecasts: spread betting (through FCA-licensed financial spread betting providers) 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 FCA-regulated spread betting sector includes firms such as 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: Commonly ranges from 2:1 to 20:1 based on the underlying asset
- Tax-free profits: In the UK, spread betting is legally treated as gambling — earnings incur no tax, and losses cannot be offset
- FCA regulated: Comprehensive safeguards for customers, mandatory negative balance protection
- Markets: Financial products only (indices, currency, commodities, equities) — excludes political or sports forecasting
- Bid-ask spread: Embedded cost (usually 1–3 pips on major currency pairs)
What Are Prediction Markets?
Prediction markets enable you to trade binary YES/NO contracts on actual real-world events. Leading platforms accessible to UK users include:
- Polymarket (via PolyGram): 8,400+ markets, crypto (USDC), ~1% effective fee, legally ambiguous
- 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 free from Capital Gains Tax and Income Tax in the UK, as long as you trade through an FCA-authorised spread betting provider. This represents one of the most valuable tax benefits available to UK retail investors. HMRC's official guidance confirms this status for financial spread betting.
Betfair Exchange / Smarkets: Tax-Free
Winnings from UKGC-licensed betting exchanges are equally tax-exempt — classified as gambling income under the Gambling Act 2005. Consequently, Betfair and Smarkets deliver the optimal combination: prediction market functionality WITH explicit tax-free treatment.
Polymarket: Tax Uncertain
Polymarket returns do not neatly fit into either the gambling exemption (lacks 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. 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 exposure to financial assets (FTSE 100, currency pairs)
- Tax-free status is essential and regulatory clarity is paramount
- Your focus is on financial price movements rather than discrete event outcomes
- You require FCA negative balance safeguards
Choose Prediction Markets When:
- You possess expertise in forecasting particular real-world scenarios (referendums, sporting contests, scientific developments)
- You prefer a defined-loss, binary framework (maximum loss equals your initial stake)
- You need access to event categories unavailable through spread betting (political contests, blockchain developments, climate events)
- Reduced commissions relative to conventional sportsbooks matter to your strategy
Best Combined Approach for UK Traders:
- Deploy an FCA-regulated spread betting account (IG, CMC) for financial instrument positions where leverage and tax-free returns are relevant
- Deploy Smarkets or Betfair Exchange for UK sports and political forecasting — UKGC-regulated, tax-free, GBP-denominated
- Deploy Polymarket via PolyGram for markets unavailable elsewhere (8,000+ global 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 is a betting exchange (UKGC-regulated), not a financial spread betting platform (FCA-regulated). Both deliver tax-free returns under distinct UK legal structures. Betfair falls under gambling law; spread betting falls under financial speculation law — both tax-free, distinct regulators.
- Can spread betting firms offer political prediction markets?
- Some do — IG Index and Spreadex offer election outcome spread bets (e.g. "Conservative seats at 200–210"). These are tax-free. Nonetheless, 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 remains the sole FCA-regulated option — though it covers only financial instrument prices, not specific event outcomes.