In this guide
Key difference: Spread betting returns remain untaxed under UK legislation. Prediction market returns (from blockchain-based venues like Polymarket) could face CGT or Income Tax liability. For UKGC-regulated, untaxed event wagering, Betfair Exchange provides the nearest equivalent. For contract variety and minimal costs, Polymarket through PolyGram leads the field.
As a British trader, you can profit through two separate channels when your forecasts prove accurate: spread betting (via UKGC-authorised financial spread betting operators) and prediction markets (via Polymarket, Betfair Exchange, or Smarkets). Grasping these distinctions matters enormously for your tax approach and trading plan.
What Is Spread Betting in the UK?
The UK's financial spread betting sector comprises FCA-authorised providers including 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: Usually 2:1 to 20:1 based on the underlying asset
- Tax-free profits: Spread betting carries gambling classification in UK law — returns escape taxation, expenses cannot be claimed
- FCA regulated: Comprehensive investor safeguards, mandatory negative balance protection
- Markets: Financial products (indices, currency, raw materials, equities) — excludes political or athletic contests
- Bid-ask spread: Embedded expense (normally 1–3 pips on major currency pairs)
What Are Prediction Markets?
Prediction markets enable you to acquire YES/NO binary agreements on factual occurrences. Leading UK-available platforms include:
- Polymarket (via PolyGram): 8,400+ markets, digital currency (USDC), ~1% net cost, uncertain legal standing
- Betfair Exchange: 500 markets, sterling, 5% commission, UKGC authorised
- Smarkets: 200 markets, sterling, 2% commission, UKGC authorised
Tax Treatment — The Critical Difference
Spread Betting: Tax-Free
Every spread betting return is free from Capital Gains Tax and Income Tax in the UK, provided your account sits with an FCA-approved spread betting operator. This represents one of the strongest tax perks accessible to British retail investors. HMRC's official position backs this treatment for financial spread betting.
Betfair Exchange / Smarkets: Tax-Free
UKGC-authorised betting exchange returns also escape taxation — categorised as gambling revenue under the Gambling Act 2005. This positions Betfair and Smarkets as optimal: prediction market functionality PLUS transparent tax-free treatment.
Polymarket: Tax Uncertain
Polymarket returns don't fit neatly within either the gambling exemption (lacks UKGC authorisation) or the spread betting exemption (not an FCA-authorised financial spread betting operation). HMRC might classify them as CGT or Income Tax obligations. Consult our comprehensive tax resource.
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 pairs)
- Tax-free status is essential and regulatory certainty matters most
- Your focus is financial price fluctuations rather than discrete event outcomes
- You value FCA negative balance safeguards
Choose Prediction Markets When:
- You possess expertise in predicting particular real-world events (referendums, matches, research outcomes)
- You favour a bounded-loss, binary arrangement (maximum loss equals your wager)
- You need access to contracts unavailable through spread betting (electoral contests, blockchain developments, meteorological events)
- Competitive pricing versus conventional wagering operators is a key concern
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 priorities
- Deploy Smarkets or Betfair Exchange for British political and athletic contests — UKGC-authorised, tax-free, sterling-denominated
- Deploy Polymarket via PolyGram for niche contracts not found elsewhere (8,000+ international event agreements) — 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 functions as a betting exchange (UKGC-authorised), distinct from a financial spread betting service (FCA-authorised). Each delivers tax-free returns under separate UK legal structures. Betfair falls under gambling law; spread betting falls under financial speculation law — both untaxed, separate oversight bodies.
- Can spread betting firms offer political prediction markets?
- Certain providers do — IG Index and Spreadex feature electoral outcome spread wagers (e.g. "Conservative seats at 200–210"). These returns remain untaxed. Nevertheless, breadth is considerably narrower than Polymarket's 249 British political contracts.
- Is there a UK prediction market with leverage?
- Not conventionally. Betfair and Smarkets operate as binary (stake only). Polymarket operates as binary. For leveraged event exposure, FCA-regulated financial spread betting remains the sole route — though it addresses financial instrument pricing only, not distinct event outcomes.