Capital Gains Tax Basics for Polymarket
HMRC classifies crypto assets (including USDC, the stablecoin used on Polymarket) as property for tax purposes. This means that when you dispose of crypto — whether by selling it for GBP, swapping it for another token, or using it to purchase goods — you may trigger a Capital Gains Tax event.
Unlike traditional gambling winnings (which are tax-free in the UK), Polymarket profits are taxable because the platform operates through crypto transactions on the Polygon blockchain. Every time you convert USDC back to pounds, HMRC considers that a disposal of a crypto asset.
Every UK taxpayer receives a Capital Gains Tax allowance each tax year. Gains below this threshold are completely tax-free.
Recent Annual Allowance History:
- 2023/24: £6,000
- 2024/25: £3,000
- 2025/26: £3,000
CGT rates depend on your total taxable income. Your gains are added on top of your income to determine which rate applies.
| Income Tax Band | CGT Rate | Example: £5,000 Gain |
|---|---|---|
| Basic rate (up to £50,270) | 10% | £200 tax |
| Higher rate (£50,271+) | 20% | £400 tax |
The £3,000 allowance is deducted first. So on a £5,000 gain, you only pay tax on £2,000.
What Triggers a Tax Event on Polymarket?
Not every action on Polymarket creates a taxable event. Here is what HMRC considers a disposal (taxable) versus what is not:
- ✅
Selling USDC for GBP
Converting your Polymarket winnings back to pounds is a disposal
- ✅
Swapping crypto (e.g. USDC to ETH)
Exchanging one crypto for another is treated as selling and rebuying
- ✅
Using crypto to buy goods or services
Spending USDC or any crypto triggers a disposal
- ⚠️
Winning a prediction market bet
The win itself may not be taxable, but converting the USDC proceeds to GBP or another crypto is
- ❌
Transferring crypto between your own wallets
Moving USDC from Coinbase to MetaMask is not a disposal
- ❌
Depositing USDC into Polymarket
Sending crypto to Polymarket's smart contract is not a disposal
- ❌
Withdrawing from Polymarket to your wallet
Moving USDC back to your personal wallet is just a transfer
- ❌
Buying crypto with GBP
Purchasing USDC is an acquisition, not a disposal
How to Calculate Your Capital Gains Tax
Follow these five steps to work out how much tax you owe on your Polymarket profits:
- 1
Record all deposits (cost basis in GBP)
Note the GBP value of every USDC purchase. If you bought £1,000 of USDC on 1 March 2025, that is your cost basis. Include exchange fees and gas fees as allowable costs.
- 2
Record all withdrawals (proceeds in GBP)
When you sell USDC for GBP, record the amount received. If you sold 1,200 USDC for £1,180, that is your proceeds. Deduct selling fees.
- 3
Calculate net gain or loss
Gain = Proceeds - Cost Basis - Allowable Costs. Example: £1,180 - £1,000 - £20 (fees) = £160 gain
- 4
Apply your annual allowance (£3,000)
Deduct £3,000 from your total gains across all assets (crypto, shares, property etc.). If your total gains are under £3,000, you owe no CGT.
- 5
Calculate tax owed
Multiply taxable gains by your CGT rate (10% or 20%). Example: £5,000 total gains - £3,000 allowance = £2,000 taxable. At 10% = £200 tax.
- January 2026: Buys 2,000 USDC for £1,580 on Coinbase
- Feb-Aug 2026: Trades on Polymarket, grows balance to 3,200 USDC
- September 2026: Withdraws and sells 3,200 USDC for £2,520
- Exchange + gas fees: £45 total
Calculation:
- Proceeds: £2,520
- Cost basis: £1,580
- Allowable costs (fees): £45
- Gain: £2,520 - £1,580 - £45 = £895
- Annual allowance remaining: £3,000
- Tax owed: £0 (gain is under annual allowance)
Reporting to HMRC
If your total capital gains exceed the £3,000 annual allowance (or your total disposal proceeds exceed four times the allowance — £12,000), you must report via Self-Assessment.
- 1
Register for Self-Assessment
If not already registered, sign up at gov.uk by 5 October following the end of the tax year
- 2
Complete the Capital Gains Tax summary (SA108)
Report your crypto disposals in the "Other property, assets and gains" section of the SA108 supplementary page
- 3
Include number of disposals and total gains
List total proceeds, allowable costs, and net gains for all crypto disposals in the tax year
- 4
Submit by 31 January
Online deadline: 31 January following the end of the tax year. For 2025/26 tax year, the deadline is 31 January 2027
- 5
Pay any tax owed
Payment is also due by 31 January. Late payment incurs interest and penalties
Recommended Tax Software
Manually tracking every Polymarket trade, USDC purchase, and GBP conversion is extremely time-consuming. Crypto tax software automates the entire process:
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- Auto-imports crypto transactions from exchanges and wallets
- Supports Polygon network and USDC transactions (used by Polymarket)
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- Handles share pooling (Section 104 holding) — HMRC's required cost basis method
- Free to try — only pay when you download your tax report
Tip: Connect Koinly to your wallet at the start of the tax year. It tracks gains in real time so you know exactly when you hit the £3,000 allowance.
Frequently Asked Questions
Are Polymarket winnings treated as gambling and therefore tax-free?
No. While traditional gambling winnings (from bookmakers, casinos, lotteries) are tax-free in the UK, Polymarket profits involve crypto asset disposals. HMRC has consistently stated that crypto is not currency or gambling chips — it is property. When you sell USDC for GBP, you are disposing of a chargeable asset.
What if my total gains are below £3,000?
If your total capital gains from all sources (crypto, shares, property etc.) are below £3,000, you owe no CGT. However, if your total disposal proceeds exceed £12,000 (4x the allowance), you may still need to report even if no tax is owed.
Can I offset Polymarket losses against gains?
Yes. Capital losses can be offset against capital gains in the same tax year. If you still have unused losses, you can carry them forward to future tax years indefinitely — but you must report them to HMRC within 4 years of the end of the tax year in which the loss occurred.
What happens if I do not report my crypto gains?
HMRC has been actively pursuing crypto tax compliance. Penalties for non-disclosure include:
- Late filing penalty: £100 initial fine, increasing over time
- Interest: Charged from the date the tax was due
- Penalty for careless error: Up to 30% of the tax owed
- Penalty for deliberate error: Up to 100% of the tax owed
- Criminal prosecution: In serious cases of deliberate tax evasion
Do I need an accountant?
For most Polymarket traders: no. Crypto tax software like Koinly handles the calculations and generates HMRC-ready reports. However, consider a crypto-specialist accountant if:
- Your gains exceed £50,000
- You have complex DeFi positions (staking, yield farming, liquidity pools)
- You trade across multiple jurisdictions
- HMRC has contacted you about your crypto activity
Summary: Your Action Plan
Set up Koinly and connect your wallets
Import your exchange accounts and Polygon wallet to track all USDC movements
Monitor your gains throughout the year
Keep an eye on the £3,000 annual allowance — stop converting to GBP if you are close
Download your HMRC tax report
Koinly generates an SA108-compatible report you can use for Self-Assessment
File your Self-Assessment by 31 January
Submit online at gov.uk and pay any CGT owed
Bonus: Koinly offers a free plan to preview your tax summary. You only pay when you download the full HMRC report.