Guide

Regulation & Tax Guide

Are prediction markets legal where you are? What taxes do you owe on winnings?

⚠️Not legal or tax advice. This guide is for informational purposes only. Tax laws and regulations change frequently and vary by individual circumstances. Always consult a qualified tax professional or lawyer in your jurisdiction.

United States

Is It Legal?

Prediction markets in the US operate in a carefully regulated environment overseen by the Commodity Futures Trading Commission (CFTC). As of 2026, the legal landscape is as follows:

  • Kalshi: Fully CFTC-regulated as a Designated Contract Market (DCM). Completely legal for all US residents with no position limits. The gold standard for US users.
  • Robinhood Prediction Markets: CFTC-regulated, integrated into the Robinhood brokerage app. Legal for US residents.
  • PredictIt: Operates under a CFTC no-action letter. Still legal, but with a $850 maximum per market and a capped user base. Has faced regulatory uncertainty.
  • Iowa Electronic Markets (IEM): Operates under a separate CFTC no-action letter for academic purposes. Legal with a $500 account maximum.
  • Polymarket: Not available to US residents. The platform settled with the CFTC in 2022 and now geo-blocks US users.
  • Betfair / Smarkets: Not available to US residents due to US gambling laws.

US Tax Treatment

Winnings from prediction markets are generally taxable in the United States. The specific tax treatment depends on the platform and how the CFTC classifies the contracts:

  • Kalshi (Section 1256 contracts): Gains on CFTC-regulated futures contracts may qualify for Section 1256 treatment — 60% long-term / 40% short-term capital gains rates, regardless of holding period. This can be advantageous for high earners. Consult a tax professional to confirm your eligibility.
  • PredictIt: Treated as ordinary income by most tax practitioners. 10%–37% depending on your income bracket. Losses may be deductible against winnings.
  • Crypto platforms (Polymarket etc.): Gains are typically subject to capital gains tax. Each winning resolution is a taxable event. USDC received on resolution = fair market value at time of receipt.

The IRS has not issued specific guidance on prediction market taxation. Tax treatment is evolving. Keep detailed records of all trades, including entry price, exit price, and dates.

United Kingdom

Is It Legal?

The UK has a well-established legal framework for prediction and betting markets:

  • Betfair & Smarkets: Licensed by the UK Gambling Commission and Financial Conduct Authority. Fully legal for UK residents.
  • Polymarket: Available to UK residents (Polymarket geo-blocks US only). Unregulated by UK authorities but not illegal to use.
  • Kalshi / PredictIt: Not available in the UK.

UK Tax Treatment

The UK has a uniquely favourable tax treatment for betting exchange profits:

  • Betting exchange winnings (Betfair, Smarkets): Generally tax-free for private individuals under UK law. HMRC treats these as gambling winnings, which are not subject to income tax or capital gains tax.
  • Professional traders: If HMRC determines you are trading prediction markets as a business or profession, profits may be treated as trading income and subject to income tax. This is rare for casual traders.
  • Crypto platforms (Polymarket): Gains may be subject to Capital Gains Tax (CGT) as cryptocurrency disposals. The £3,000 annual CGT exemption (2024/25) may shelter smaller gains.

European Union

Regulation varies significantly across EU member states. Most EU countries treat prediction market winnings similarly to gambling income — either tax-free or subject to specific gambling tax rates. Platforms like Betfair are licensed in Malta (MGA) and available across most of the EU.

Consult a tax adviser in your specific country for accurate guidance.

Rest of the World

Polymarket and other crypto-based platforms are available in most countries outside the US. Tax treatment varies enormously — from tax-free (some Gulf states) to ordinary income (Australia, Canada) to no specific guidance (many jurisdictions).

In jurisdictions without specific prediction market rules, crypto gains are typically treated as capital gains or ordinary income depending on the tax authority's position on cryptocurrency.

Key Takeaways

  • US traders: Use Kalshi or Robinhood for the most legally secure experience
  • UK traders: Betfair and Smarkets winnings are typically tax-free for private individuals
  • International traders: Polymarket offers the best experience but has no regulatory protection
  • Always keep trade records for tax purposes, regardless of jurisdiction
  • Consult a qualified tax professional — tax laws change and individual circumstances vary