The Trade That Pays No Tax, and the One That Looks Identical but Doesn't
Open a spread betting account and a CFD account with the same broker, place the same bet on the FTSE 100 at the same price, close it for the same £400 profit — and HMRC treats the two exactly £70 apart. One is tax-free. The other isn't. Most UK traders who use both products interchangeably, because the platforms look identical and the price feeds are the same, have no idea the tax outcome diverges this sharply until they file a Self Assessment return and find one column of profits is invisible to HMRC and the other isn't.
Two Products, One Screen, Different Tax Worlds
A spread bet and a CFD both let you speculate on a price moving up or down without owning the underlying share, index, or commodity. You put down margin, the broker gives you leveraged exposure, and you close the position for a profit or a loss based on the price difference. Structurally they're close to identical — so close that brokers like IG and CMC Markets run both products off the same platform with the same charts and the same execution engine. The difference that matters is legal, not technical: spread betting is classified in UK law as a form of gambling under the Gambling Act, while a CFD (Contract for Difference) is classified as a financial instrument. That single classification decision is why spread betting profits are exempt from Capital Gains Tax and from Stamp Duty Reserve Tax, while CFD profits are fully taxable as capital gains. Losses work the same way in reverse — a losing CFD trade can be offset against other capital gains to reduce your tax bill, while a losing spread bet gives you nothing to offset, because HMRC never taxed the winning version either. There's no free lunch hiding in the small print; it's a genuine trade-off between tax exemption and loss relief, and which side of it suits you depends on whether you expect to be net up or net down over the tax year.
The Tax Difference When You Actually Run the Numbers
Say you make £8,000 in profit trading FTSE 100 and gold CFDs over the 2026/27 tax year. The Capital Gains Tax annual exempt amount is £3,000, down from £12,300 as recently as 2022/23 and £6,000 the year after that — a cut that's quietly pulled a huge number of active CFD traders into a tax bill who'd never have hit the old threshold. On £5,000 of taxable gains above the exemption, a higher-rate taxpayer pays 24% on shares-linked instruments, which comes to £1,200 owed to HMRC. Run the identical £8,000 profit through a spread betting account instead and the tax bill is zero, because none of it was ever a capital gain in the eyes of HMRC. Run a losing year instead — say a £4,000 loss on CFDs — and the calculation flips. That loss carries forward and can be set against gains in future years, potentially saving hundreds of pounds in tax on a subsequent winning year. A £4,000 loss on spread betting saves you nothing on your tax return, because it was never inside the tax system to begin with. Traders who expect consistent, low-volatility profits generally do better under spread betting; traders early in their strategy, still working out an edge and expecting some losing years, get more long-term value from the loss relief a CFD account provides.
When HMRC Decides You're Actually Running a Business
The tax-free status of spread betting isn't unconditional.
HMRC applies what's known as the "badges of trade" test — a set of indicators including frequency of transactions, organisation, whether trading is your main source of income, and whether you're using borrowed money or specialist knowledge to run it like a business rather than a hobby.
In practice, HMRC's own manuals confirm the overwhelming majority of individual spread bettors are treated as gambling for tax purposes regardless of frequency, and there's no published case of an ordinary retail spread bettor being successfully reclassified purely for trading often. Don't take that as a guarantee, though — if spread betting becomes your sole income, you run it through a structured, business-like operation, and you can demonstrate none of the usual hallmarks of a punter (no research process, no risk management, no independent judgement), the position gets murkier. The safer read for anyone trading meaningful sums is to keep records regardless, because "I assumed it was tax-free" is not a defence HMRC accepts after the fact.
Leverage, Margin, and the Guardrails the FCA Actually Enforces
Both products are leveraged, which means your exposure to the market is a multiple of the cash you put down — and that leverage is capped by the FCA at the same levels for both spread betting and CFDs, because the regulator treats the risk identically even though the tax treatment differs. Major currency pairs are capped at 30:1, major indices including the FTSE 100 and S&P 500 at 20:1, gold and other commodities at 10:1, individual shares at 5:1, and cryptoasset CFDs at 2:1. A £1,000 margin deposit on a major index position controls £20,000 of exposure — which means a 5% adverse move wipes out a quarter of your account, not a twentieth of it.
Every FCA-regulated broker offering these products to retail clients has been required since 2019 to provide negative balance protection, meaning you can't lose more than the money in your account regardless of how far the market moves against you overnight. That protection is mandatory and non-negotiable for retail accounts — professional accounts can opt out and lose it, which is one more reason not to tick the "professional client" box on a broker's onboarding form unless you genuinely qualify and understand what you're giving up.
Choosing Between the Two in Practice
IG and CMC Markets offer both spread betting and CFDs from the same account infrastructure, so switching between them for the same trade idea is mostly a matter of which tab you open. Spreadex built its reputation specifically on spread betting and still leans that way in its product range. City Index and eToro sit more heavily on the CFD side, and eToro's social-trading features — copying other traders' positions — are only available through its CFD product, not through spread betting at all.
The better approach for most UK retail traders isn't picking one product exclusively — it's running spread betting for the trading style you expect to be consistently profitable in (where the tax exemption compounds over years) and reserving a CFD account for higher-conviction, higher-risk positions where losses are a real possibility you'd want relief on. Don't split a single strategy across both accounts purely to chase marginal spread differences between brokers; the record-keeping headache isn't worth saving half a pip.
The Risk Warning Nobody Reads Past the Headline Number
Every FCA-regulated CFD and spread betting provider is required to publish, prominently, the percentage of retail client accounts that lose money trading with them — and across the industry that figure typically sits somewhere between 65% and 80%, depending on the broker and the period measured. That's not a marketing footnote; it's a regulator-mandated disclosure specifically because these products caused enough retail harm that the FCA intervened with leverage caps and warning requirements in 2019 after years of unrestricted exposure ruining accounts overnight.
None of that makes either product inherently unsuitable — professional and experienced retail traders use both productively every day, and the tax treatment genuinely rewards a disciplined, consistent approach. What it does mean is that leverage cuts both ways with mechanical indifference, and the same 20:1 multiple that turns a good week into a great one turns a bad week into a margin call. Size positions as if the adverse move is the base case, not the exception, and the tax advantage of spread betting becomes something you actually live long enough to benefit from.