The UK Tax Treatment of Polymarket Profits

The UK tax treatment of Polymarket profits depends on what the participant is actually doing: placing genuine bets, transferring outcome tokens, dealing in financial contracts or earning income from a commercial service. A successful prediction market strategy may produce tax-free personal betting winnings, but that does not mean every transaction on the platform is exempt.

The questions become more difficult where participants trade positions before settlement, use automated order-book strategies, earn liquidity incentives or fund transactions with USDC. Companies also face a different statutory framework. This guide explains the distinctions, with practical examples and references to HMRC’s current and historical guidance.

How Polymarket Works

Polymarket allows participants to take YES or NO positions on whether a specified event will occur. Its Conditional Token Framework (CTF) represents positions as transferable ERC-1155 tokens. 

For example, collateral can be split into complementary outcomes, matching tokens can be merged, and winning tokens can be redeemed after resolution. Trading before resolution takes place through an order-book model.

For example, a participant buys 1,000 YES tokens at $0.40 each, giving a total cost of $400. If the predicted event occurs, each winning token redeems for $1. The participant therefore receives $1,000, making a gross profit of $600 before fees.

Alternatively, they could sell the tokens to another trader before the event is resolved. However, the UK tax treatment of that sale may differ from the treatment of winnings received at settlement.

Why Personal Gambling Winnings are Normally Tax-Free

In Graham v Green [1925], the court distinguished the person placing bets from someone organising a taxable business around betting. HMRC’s internal guidance at BIM 22015 confirms that betting and gambling, as such, do not amount to trading. 

Additionally, TCGA 1992 section 51(1) excludes winnings from betting, lotteries and games with prizes from chargeable gains. Corresponding personal gambling losses are not normally deductible.

Furthermore, HMRC’s guidance at BIM22017 expressly acknowledges that having a system or making enough money to live on does not, by itself, turn a punter into a trader. This is especially relevant where prediction market participants use sophisticated models or achieve unusually high profits.

HMRC’s Previous Approach to Cryptocurrency and Gambling

Revenue & Customs Brief 9 (2014), issued when Bitcoin was relatively new, acknowledged that exceptionally speculative cryptocurrency transactions could, in some circumstances, fall outside taxation by analogy with gambling. However, HMRC issued that guidance before cryptoasset markets developed into their present form.

That guidance has been superseded. HMRC now generally regards buying and selling cryptoassets as investment or trading activity rather than gambling. 

Nevertheless, HMRC’s current Cryptoassets Manual recognises that whether a particular cryptoasset transaction amounts to betting or gambling is a question of fact. The 2014 statement provides historical context, not a present-day exemption for Bitcoin or Polymarket. In particular, a highly speculative investment does not become a bet merely because the risk is extreme.

Are Polymarket Outcome Tokens Betting Rights or Chargeable Assets?

In practice, the protocol gives token holders transferable conditional economic rights. The holder of a winning token can redeem the settlement value following resolution, and a buyer on the secondary market can acquire those rights before resolution. 

Polymarket’s website terms and the protocol-level token rights are not necessarily the same legal instrument; a website restriction on assignment should not automatically be treated as a prohibition on transferring tokens.

Why the Legal Character of the Token Matters

On the one hand, a token may represent rights under a genuine bet. so its transfer realises or assigns a betting position. On the other hand, a transferable token may be a distinct chargeable asset whose sale falls within Capital Gains Tax. Neither follows automatically from the fact that the instrument is tokenised.

Section 51(1) TCGA 1992 exempts betting winnings. However, its separate wording concerning disposals of rights to winnings is not a blanket exemption for every transferable betting-related right. Therefore, positions held to settlement should be distinguished from tokens sold beforehand. The law, token rights and legal character of each transaction must all be considered.

Selling Polymarket Tokens Before Settlement: A Worked Example

If the $3,500 represents the disposal of a chargeable asset, a sterling capital gains calculation may be needed. By contrast, if the transaction falls within a relevant betting exemption, the outcome may differ. Selling before settlement is relevant, but it is not conclusive.

Could the October 2026 Budget CGT Changes Affect Polymarket Token Sales?

On 28 October 2026, HMRC announced changes to the Capital Gains Tax rules governing payments received for surrendering contractual rights. The draft legislation would amend section 22 of the Taxation of Chargeable Gains Act 1992 to clarify that capital sums received under a contract in return for losing rights under that contract can fall within the capital gains rules.

Consequently, the proposed changes may be relevant to prediction markets because Polymarket outcome tokens can be transferred before the underlying event is resolved.

Secondary Sales and Surrendered Rights Are Not Necessarily the Same

However, selling an outcome token to another trader is not necessarily the same as surrendering rights to a contractual counterparty. A secondary-market sale may already constitute a disposal of an asset under existing legislation, depending on the legal nature of the token and the rights it represents.

The new rules also do not automatically override the statutory exemptions relating to betting winnings. Whether those exemptions apply to a particular Polymarket transaction remains a separate question.

For UK taxpayers, the key issue is therefore not simply whether an outcome token was sold before settlement. Instead, the question is whether the transaction involves a chargeable asset, the transfer of rights under a bet or the surrender of contractual rights for consideration.

The proposed amendment applies to relevant capital sums received from 28 October 2026, although its final legislative form remains subject to enactment.

When Does Professional Betting Become a Taxable Trade?

Importantly, there is no fixed profit threshold at which personal betting becomes a taxable trade. Even substantial winnings sustained over a long period would not, on their own, make the activity taxable. Similarly, frequent betting, detailed research, sophisticated staking strategies and automated software do not necessarily change the position.

In fact, some of our clients have maintained successful careers as professional gamblers without paying tax on their gambling winnings.”

However, substantial profits should not automatically be regarded as tax-free. First, the underlying activity must qualify as genuine betting. Profits from selling transferable outcome tokens may require separate analysis. Likewise, liquidity fees, market-making services and platform rewards may generate taxable income, depending on the arrangements.

What Have the Courts Said About Professional Gambling?

The distinction between gambling and trading has also been considered by the tax tribunals. In McMillan v HMRC [2020] UKFTT 82 (TC), the taxpayer had accumulated substantial winnings through football betting and high-stakes poker. Despite his sophisticated betting system and significant bank deposits, the tribunal found that HMRC had failed to establish a taxable source of income. His gambling winnings were therefore not taxable.

Similarly, in Manzur v HMRC [2010] UKFTT 580 (TC), the tribunal considered whether frequent share dealing amounted to trading. It concluded that the activity was investment management rather than a trade. Although this was not a gambling case, it reinforces the principle that transaction frequency, short holding periods and an intention to make profits do not, by themselves, establish trading.

However, neither decision establishes that every Polymarket transaction is tax-free. The legal nature of the outcome tokens, any disposals before settlement and the activities undertaken must still be considered separately.

When Does Betting Become Bookmaking?

In contrast, HMRC distinguishes between someone placing bets and someone organising a business that profits from the gambling public, such as a bookmaker. The relevant question is the commercial role performed, not simply the number of bets placed or the amount won. A bookmaker may also place hedging bets as part of a taxable business.

This distinction is especially relevant to Polymarket’s central limit order book (CLOB). However, quoting orders does not automatically make someone a bookmaker: a trader who places orders and accepts market risk may still be acting on their own account.

By contrast, someone operating a service, earning fees for organising a market or undertaking activities comparable to a bookmaker may be in a different position.

Directional Bets, Bots, Arbitrage and Market Making

Not everyone making profits on Polymarket is doing so in the same way. Some traders take positions on the outcome of an event, while others use automated strategies, arbitrage or market-making techniques. 

Consequently, the tax treatment depends on the underlying transactions and whether the person is betting on their own account or providing commercial services.

Does Using a Trading Bot Make Polymarket Profits Taxable?

Using a trading bot does not automatically turn gambling winnings into taxable income. For example, a bot might place directional bets based on predefined criteria, but automation alone does not establish that the individual is carrying on a trade

However, the tax position may be different where the bot buys and sells transferable outcome tokens before settlement, provides liquidity or earns separate rewards. In those circumstances, we need to consider the nature of each transaction rather than treating all profits as gambling winnings.

For example, a bot that repeatedly buys YES tokens because its model predicts a favourable outcome is not automatically conducting a taxable trade. Conversely, an operator paid to maintain liquidity, provide execution infrastructure or facilitate third-party transactions may have taxable receipts. 

Arbitrage is not a legal classification: each underlying contract and reward stream must be examined.

Nor must liquidity rewards always be miscellaneous income rather than trading income. Their treatment depends on what the payment is for, the contractual terms and the wider activity.

Although the combined profit is £5,000, applying the same tax treatment to the entire amount would be inappropriate. Instead, the source and legal character of each receipt must be considered. The daily total is not itself a trading test.

HMRC is not at liberty to disregard the law simply because winnings are substantial. Equally, the possibility of tax relief on later trading losses is not a reliable reason to assume HMRC would never challenge a taxpayer’s classification. Loss relief is governed by its own statutory conditions and restrictions.

Spread Betting, CFDs and Corporate Derivatives

Genuine personal financial spread betting is normally tax-free, subject to exceptions where bets form part of an existing taxable business. Ordinary investment contracts for differences (CFDs) are generally chargeable assets for individuals. For companies, Part 7 of CTA 2009 provides a derivative contracts regime that can bring qualifying contracts into Corporation Tax, including arrangements with betting-like features.

However, a prediction market contract should not be called a CFD simply because its payoff depends on an event. Its statutory definition, accounting treatment and contractual terms must be checked. Likewise, a company cannot assume it benefits from the same exemption as a private punter.

This assumes the contracts fall within a taxable corporate regime, the entire profit is taxable, the 25% rate applies and there are no relevant reliefs or losses. Furthermore, tax may arise when shareholders extract profits. Incorporation should therefore follow, rather than precede, analysis of the underlying activity.

USDC: Why a Tax-Free Bet Can Still Involve a Taxable Crypto Disposal

At present, stablecoins such as USDC are generally treated as cryptoassets for tax purposes. Using USDC to acquire another asset, or exchanging it for sterling, can constitute a disposal. Because the UK calculation is in pounds, movements in the US dollar exchange rate may produce gains or losses even if USDC remains close to $1.

As a result, the £500 gain arises on the stablecoin disposal and is separate from the result of the underlying bet. In practice, the same-day, 30-day and section 104 matching rules may affect the cost. Transfers between wallets under the same beneficial ownership do not ordinarily constitute disposals.

How Will the Proposed Stablecoin Tax Rules Affect Polymarket?

The UK tax treatment of stablecoins could change from April 2027. This is particularly relevant to Polymarket users because positions are commonly funded and settled using USDC or related tokens.

Under proposals updated by HMRC on 28 October 2026, disposals of qualifying fiat-backed stablecoins by individuals and trustees would become exempt from Capital Gains Tax from 6 April 2027. For companies, separate changes proposed from 1 April 2027 would bring qualifying stablecoins and certain lending arrangements within the Corporation Tax loan relationship rules.

However, these proposals are not yet in force and remain subject to the final legislation.

Will USDC qualify for the exemption?

However, not every token described as a stablecoin will necessarily qualify for the proposed exemption. The statutory conditions will determine which assets are eligible.

For example, bridged or wrapped tokens, including USDC.e, may require separate consideration. Therefore, taxpayers should not assume that every form of USDC will automatically benefit from the proposed rules

There is also an important transitional issue. Under the proposals, gains and losses on stablecoins already held when the new rules begin may need to be calculated at commencement. An election to defer recognition is proposed, but existing gains should not simply be treated as disappearing.

What would this mean in practice?

Consider someone who uses 10,000 USDC, worth £8,000, to fund a Polymarket position. The assumed allowable cost is £7,500, giving an economic gain of £500.

Under current rules, that disposal could trigger a £500 capital gain. Under the proposed rules, a qualifying future disposal might be exempt, although any transitional gain would need separate consideration.

Importantly, an exemption for the stablecoin disposal would not automatically exempt profits from selling Polymarket outcome tokens. Those transactions require their own tax analysis.

For a more detailed explanation of the proposed legislation, including which stablecoins may qualify and how the transitional rules work, read our guide to How Stablecoins Are Taxed in the UK.

Pooling Funds and Managing Other People's Polymarket Positions

Where several individuals contribute funds to a shared wallet, the first step is to establish who beneficially owns the funds and the resulting positions. It's also necessary to identify who enters into the contracts and how the profits are shared.

Pooling capital does not, by itself, create a taxable partnership. However, the position may change where participants operate a business together or receive fees for managing other people's positions. Those receipts need to be considered separately from any personal betting winnings.

For example, three individuals each contribute £50,000 and subsequently share £300,000 of net winnings equally. Their £100,000 shares may qualify as exempt betting winnings if the underlying contracts and beneficial ownership support that treatment.

However, if one participant also receives £20,000 for managing the strategy, that payment may be taxable income, even where the underlying winnings are exempt.

Can Polymarket Losses Reduce Your Tax liability?

Genuine personal gambling losses generally cannot be offset against taxable cryptoasset gains. For example, a loss on a qualifying bet cannot ordinarily be deducted from a capital gain arising on the sale of Bitcoin.

By contrast, an allowable capital loss on the disposal of a chargeable cryptoasset may be available to offset other chargeable gains. However, this depends on the legal nature of the transaction and the normal Capital Gains Tax rules.

Will HMRC Know About Prediction Market Transactions?

The introduction of the UK's Cryptoasset Reporting Framework (CARF) on 1 January 2026 means that HMRC will receive more information about certain crypto transactions.

Under these rules, relevant reporting service providers must collect and report information about users and qualifying transactions. The first reports, covering the 2026 calendar year, are due in 2027.

Not every decentralised protocol is automatically subject to these obligations. Nevertheless, traders should not assume that activity involving self-custody wallets, stablecoins or prediction-market tokens will remain outside HMRC's visibility.

Importantly, reporting a transaction does not establish that it is taxable. HMRC must still apply the relevant legislation to determine whether the receipt represents gambling winnings, a chargeable disposal or taxable income.

The UK Tax Treatment of Polymarket Profits: Getting It Right

The tax treatment of Polymarket profits cannot be determined simply by looking at how much someone has earned or how frequently they trade.

A person receiving substantial winnings from genuine betting may have no Income Tax liability on those winnings. However, selling transferable outcome tokens, disposing of stablecoins or receiving payments for providing liquidity and other services can raise separate tax questions.

The position becomes more complicated where traders use automated strategies, manage pooled funds or operate through limited companies.

Furthermore, recent developments, including the October 2026 proposals concerning the surrender of contractual rights and the proposed April 2027 stablecoin changes, make it particularly important to distinguish between the different transactions involved.

The starting point is to establish exactly what the individual owns, what rights the contracts provide and how those rights are realised. Only then can the appropriate UK tax treatment be determined.

Our Technical Assessment of Polymarket Profits

In our view, the UK tax treatment of Polymarket profits depends on the legal nature of the transaction, not simply whether the activity takes place on a prediction market or involves crypto.

Where an individual enters into a genuine bet and holds the position to settlement, there is a strong argument that the resulting winnings fall within the established exemption for betting gains. However, selling transferable outcome tokens before settlement raises different questions, particularly where the transaction involves disposing of contractual rights rather than receiving winnings under the original bet.

Equally, using sophisticated strategies, automated bots or substantial capital does not automatically turn personal gambling into a taxable trade. Nevertheless, separate consideration may be required for liquidity rewards, market-making activities and stablecoin disposals.

Our approach is to examine what actually happened, how the relevant contracts operate and which statutory provisions apply before reaching a conclusion.

Significant Polymarket Profits? Get Specialist UK Tax Advice

If you've made substantial profits from Polymarket or other prediction markets, assuming they're all tax-free gambling winnings could prove costly. Equally, treating every transaction as a taxable cryptoasset disposal could result in tax being paid unnecessarily

At The Friendly Accountants, we specialise in complex UK cryptoasset taxation. Our team are experienced advisers familiar with the practical difficulties of reconciling blockchain transactions and applying UK tax legislation.

We can help assess the nature of your prediction-market activity, examine the treatment of outcome tokens and stablecoins, and identify where profits may be exempt or taxable.

Whether you're an individual generating significant returns, operating automated trading strategies or considering a company structure, getting the classification right from the outset is essential.

Don't leave the tax treatment of substantial prediction-market profits to guesswork. Speak to our specialist crypto tax team to discuss your circumstances and how we can help.

If you would like to discuss how we could help your business, please complete our Business Questionnaire and a member of our team will be in touch.