History of taxation in the United Kingdom - wikipedia History of taxation in the United Kingdom History of taxation in the United Kingdom includes the history of all collections by governments under law, in money or in kind, including collections by monarchs and lesser feudal lords, levied on persons or property subject to the government, with the primary purpose of raising revenue. Contents 1 Background 2 From 1707 2.1 Window tax 2.2 Income tax 3 19th century 3.1 Under Peel 3.2 Gladstone and Disraeli 4 20th century 4.1 First World War 4.2 Purchase tax 4.3 Income tax 4.4 Business rates 5 21st century 5.1 Devolution of Tax powers 6 Notes 7 Further reading 8 See also 9 External links Background Main article : Taxation in medieval England Prior to the formation of the United Kingdom in 1707, taxation had been levied in the countries that joined to become the UK. For example, in England, King John introduced an export tax on wool in 1203 and King Edward I introduced taxes on wine in 1275. Also in England, a Poor Law tax was established in 1572 to help the deserving poor, and then changed from a local tax to a national tax in 1601. In June 1628, England 's Parliament passed the Petition of Right which among other measures, prohibited the use of taxes without its agreement. This prevented the Crown from creating arbitrary taxes and imposing them upon subjects without consultation. One of the key taxes introduced by Charles II was to help pay for the rebuilding of the City of London after the Great Fire in 1666. Coal tax acts were passed in 1667 and in 1670. The tax was eventually repealed in 1889. In 1692, the Parliament of England introduced a national land tax. This tax was levied on rental values and applied both to rural and to urban land. No provision was made for re-assessing the 1692 valuations and consequently they remained in force well into the 18th century. From 1707 Window tax Main article : Window tax When the United Kingdom of Great Britain came into being on May 1, 1707, the window tax, which had been introduced across England and Wales under the Act of Making Good the Deficiency of the Clipped Money in 1696, continued. It had been designed to impose tax relative to the prosperity of the taxpayer, but without the controversy that then surrounded the idea of income tax. At that time, many people opposed income tax on principle because they believed that the disclosure of personal income represented an unacceptable governmental intrusion into private matters, and a potential threat to personal liberty. In fact the first permanent British income tax was not introduced until 1842, and the issue remained intensely controversial well into the 20th century. When the window tax was introduced, it consisted of two parts : a flat - rate house tax of 2 shillings per house ( equivalent to £ 12.73 in 2016 ) and a variable tax for the number of windows above ten windows. Properties with between ten and twenty windows paid a total of four shillings ( comparable to £ 25.47 in 2016 ), and those above twenty windows paid eight shillings ( £ 50.94 as of 2016 ). Income tax Income tax was first implemented in Great Britain by William Pitt the Younger in his budget of December 1798 to pay for weapons and equipment in preparation for the Napoleonic Wars. Pitt 's new graduated ( progressive ) income tax began at a levy of 2 old pence in the pound ( 1 / 120 ) on incomes over £ 60 ( £ 5,796 as of 2016 ), and increased up to a maximum of 2 shillings ( 10 % ) on incomes of over £ 200. Pitt hoped that the new income tax would raise £ 10 million, but actual receipts for 1799 totalled just over £ 6 million. 19th century Pitt 's income tax was levied from 1799 to 1802, when it was abolished by Henry Addington during the Peace of Amiens. Addington had taken over as prime minister in 1801, after Pitt 's resignation over Catholic Emancipation. The income tax was reintroduced by Addington in 1803 when hostilities recommenced, but it was again abolished in 1816, one year after the Battle of Waterloo. Addington 's Act for a ' contribution of the profits arising from property, professions, trades and offices ' ( the words ' income tax ' were deliberately avoided ) introduced two significant changes. First, it allowed taxation at the source ; for instance, the Bank of England would deduct an amount, to be paid as tax, from interest paid to gilt holders. Secondly, it introduced schedules : Schedule A ( tax on income from UK land ) Schedule B ( tax on commercial occupation of land ) Schedule C ( tax on income from public securities ) Schedule D ( tax on trading income, income from professions and vocations, interest, overseas income and casual income ) Schedule E ( tax on employment income ) Income not falling within those schedules was not taxed. ( Later a sixth Schedule, Schedule F ( tax on UK dividend income ) was added. ) Although the maximum tax rate under Addington 's Act was 5 % -- only one - half of the 10 % allowed under Pitt 's -- the other changes resulted in a 50 % increase in revenue, largely because it doubled the number of persons liable for the tax and somewhat expanded the scope. Pitt in opposition had argued against Addington 's innovations : he adopted them largely unchanged, however, when he returned to office in 1805. The one major change he made was to raise the maximum rate back to the 10 %, the rate in his original bill, in 1806. Income tax changed little for the duration of the Napoleonic Wars, despite changes in government. Nicholas Vansittart was Chancellor in 1815, at the time of the Battle of Waterloo. He was inclined to maintain the income tax, but public sentiment was heavily against it, and predictably, the opposition championed its abolition. It was thus repealed in 1816 ' with a thundering peal of applause '. In fact, the tax was so unpopular that Parliament ordered the destruction of all documents connected with it. This was more show than substance, as the King 's Remembrancer had made duplicates and retained them. Under Peel The general election of 1841 was won by the Conservatives with Sir Robert Peel as Prime Minister. Although he had opposed the unpopular income tax during the campaign, an empty Exchequer and a growing deficit gave rise to the surprise return of the tax in his 1842 Budget. Peel sought only to tax those with incomes above £ 150 per annum ( £ 12,959 as of 2016 ), and he reduced customs duties on 750 articles out of a total number taxed of 1,200. The less wealthy benefited, and trade revived as a consequence. Peel 's income tax was 7d in the pound ( about 3 % ). It was imposed for three years, with the possibility of a two - year extension. A funding crisis in the railways and increasing national expenditure ensured that it was maintained. For Peel, the debate was academic. In 1846 he repealed the Corn Laws -- which supported landowners by inflating the price of corn when cheaper imports were available -- and lost the support of much of his party. The Whigs resumed power the same year to be joined by some notable ' Peelites '. Gladstone and Disraeli The second half of the 19th century was dominated by two politicians -- Benjamin Disraeli and William Ewart Gladstone. A Conservative, Disraeli opposed Peel 's repeal of the Corn Laws ( which had inflated the price of imported grain to support home farmers ). He was three times Chancellor of the Exchequer and twice Prime Minister. Formerly a Conservative, Gladstone supported the repeal of the Corn Laws and moved to the opposition ( Whigs, and from 1868 Liberals ). He was four times Chancellor and four times Prime Minister -- his final term starting at age 82. Disraeli and Gladstone agreed about little, although both promised to repeal income tax at the 1874 General Election. Disraeli won -- the tax stayed ( and probably would have done under Gladstone too ). Gladstone spoke for nearly five hours introducing his 1853 Budget. He outlined plans for phasing out income tax over seven years ( which the Crimean War was to upset ), of extending the tax to Ireland, and introduced tax deductions for expenses ' wholly, exclusively and necessarily ' incurred in the performance of an office -- including keeping and maintaining a horse for work purposes. The 1853 Budget speech included a review of the history of the tax and its place in society, it is regarded as one of the most memorable ever made. With the Whigs defeated in 1858, Disraeli returned as Chancellor and in his Budget speech described income tax as ' unjust, unequal and inquisitorial ' and ' to continue for a limited time on the distinct understanding that it should ultimately be repealed '. But the Conservatives return to power was short - lived. From 1859 to 1866, the Whigs were back with Viscount Palmerston as Prime Minister and Gladstone as Chancellor. Gladstone had set 1860 as the year for the repeal of income tax, and his Budget that year was eagerly awaited. Ill health caused it to be delayed and for his speech to be shortened to four hours. But he had to tell the House that he had no choice but to renew the tax. The hard fact was that it raised £ 10 million a year, and Government expenditure had increased by £ 14 million since 1853 to £ 70 million ( these figures should be multiplied by 50 for a modern equivalent ). Gladstone was still determined that income tax should be ended. When a Select Committee was set up against his wishes to consider reforms which might preserve it, he packed the committee with supporters to ensure that no improvements could be made. In 1866, the Whigs ' modest attempts at Parliamentary reform failed to win support in Parliament and the Conservatives returned to power, although with no overall majority. Disraeli succeeded where Gladstone had failed, seeing the Reform Bill of 1867 become law. This gave the vote to all householders and to those paying more than £ 10 in rent in towns -- and so enfranchising many of the working class for the first time. Similar provisions for those living in the country came with Gladstone in 1884. While Disraeli had gambled that an increased electorate would ensure a Conservative majority, and in 1868 he was Prime Minister, the election of that year saw the Liberals -- as the Whigs had become -- victorious under Gladstone. Income tax was maintained throughout his first Government, and there were some significant changes made including the right to appeal to the High Court if a taxpayer or the Inland Revenue thought the decision of the appeal Commissioners was wrong in law. But there was still a determination to end it. The Times, in its 1874 election coverage, said ' It is now evident that whoever is Chancellor when the Budget is produced, the income tax will be abolished '. Disraeli won the election, Northcote was his Chancellor and the tax remained. At the time it was contributing about £ 6 million of the Government 's £ 77 million revenue, while Customs and Excise contributed £ 47 million. It could have been ended, but at the rate at which it was applied ( less than 1 % ) and with most of the population exempt, it was not a priority. With worsening trade conditions, including the decline of agriculture as a result of poor harvests and North American imports, the opportunity never arose again. 20th century First World war The war ( 1914 -- 1918 ) was financed by borrowing large sums at home and abroad, by new taxes, and by inflation. It was implicitly financed by postponing maintenance and repair, and canceling unneeded projects. The government avoided indirect taxes because they raised the cost of living, and caused discontent among the working class. There was a strong emphasis on being `` fair '' and being `` scientific. '' The public generally supported the heavy new taxes, with minimal complaints. The Treasury rejected proposals for a stiff capital levy, which the Labour Party wanted to use to weaken the capitalists. Instead, there was an excess profits tax, of 50 percent of profits above the normal prewar level ; the rate was raised to 80 percent in 1917. Excise taxes were added on luxury imports such as automobiles, clocks and watches. There was no sales tax or value added tax. The main increase in revenue came from the income tax, which in 1915 went up to 3s. 6d in the pound ( 17.5 % ), and individual exemptions were lowered. The income tax rate grew to 5s ( 25 % ) in 1916, and 6s ( 30 % ) in 1918. Altogether, taxes, provided at most 30 percent of national expenditures, with the rest from borrowing. The national debt soared from £ 625 million to £ 7,800 million. Government bonds typically paid five percent. Inflation escalated so that the pound in 1919 purchased only a third of the basket it had purchased it 1914. Wages were laggard, and the poor and retired were especially hard hit. Purchase tax Between October 1940 and 1973 the UK had a consumption tax called Purchase Tax, which was levied at different rates depending on goods ' luxuriousness. Purchase Tax was applied to the wholesale price, initially at a rate of 331⁄3 %. This was doubled in April 1942 to 662⁄3 %, and further increased in April 1943 to a rate of 100 %, before reverting in April 1946 to 331⁄3 % again. Unlike VAT, Purchase Tax was applied at the point of manufacture and distribution, not at the point of sale. The rate of Purchase Tax at the start of 1973, when it gave way to VAT, was 25 %. On 1 January 1973 the UK joined the European Economic Community and as a consequence Purchase Tax was replaced by Value Added Tax on 1 April 1973. The Conservative Chancellor Lord Barber set a single VAT rate ( 10 % ) on most goods and services. Income tax UK income tax has changed over the years. Originally it taxed a person 's income regardless of who was beneficially entitled ( that is, regardless of whether they had a legal obligation to pass it on to another person ) to that income, but now a person owes tax only on income to which he or she is beneficially entitled. Most companies were taken out of the income tax net in 1965 when corporation tax was introduced. These changes were consolidated by the Income and Corporation Taxes Act 1970. Also the schedules under which tax is levied have changed. Schedule B was abolished in 1988, Schedule C in 1996 and Schedule E in 2003. For income tax purposes, the remaining schedules were superseded by the Income Tax ( Trading and Other Income ) Act 2005, which also repealed Schedule F completely. The Schedular system and Schedules A and D still remain in force for corporation tax. The highest rate of income tax peaked in the Second World War at 99.25 %. It was then slightly reduced and was around 90 % through the 1950s and 60s. Tax revenues as a percentage of GDP for the U.K. in comparison to the OECD and the EU 15. In 1971 the top rate of income tax on earned income was cut to 75 %. A surcharge of 15 % kept the top rate on investment income at 90 %. In 1974 the cut was partly reversed and the top rate on earned income was raised to 83 %. With the investment income surcharge this raised the top rate on investment income to 98 %, the highest permanent rate since the war. This applied to incomes over £ 20,000 ( £ 191,279 as of 2016 ),. Margaret Thatcher, who favoured indirect taxation, reduced personal income tax rates during the 1980s. In the first budget after her election victory in 1979, the top rate was reduced from 83 % to 60 % and the basic rate from 33 % to 30 %. The basic rate was also cut for three successive budgets -- to 29 % in the 1986 budget, 27 % in 1987 and to 25 % in 1988. The top rate of income tax was cut to 40 % in the 1988 budget. The investment income surcharge was abolished in 1985. Under the government of John Major the basic rate was reduced in stages to 23 % by 1997. Business rates Business rates were introduced in England and Wales in 1990, and are a modernised version of a system of rating that dates back to the Elizabethan Poor Law of 1601. As such, business rates retain many previous features from, and follow some case law of, older forms of rating. The Finance Act 2004 introduced an income tax regime known as `` pre-owned asset tax '' which aims to reduce the use of common methods of inheritance tax avoidance. 21st century Under Labour chancellor Gordon Brown, the Basic Rate of Income Tax was further reduced in stages to 20 % by 2007. As the basic rate stood at 35 % in 1976, it has been reduced by 43 % since then. However, this reduction has been largely offset by increases in other regressive taxes such as National Insurance contributions and Value Added Tax ( VAT ). In 2010, a new top rate of 50 % was introduced on income over £ 150,000 p.a. In the 2012 budget, this rate was cut to 45 % with effect from 6 April 2013. Devolution of tax powers Main article : Scottish income tax The Scotland Act 2016 gave the Scottish Parliament full control over income tax rates and bands, except the personal allowance. In 2017 / 18, the only notable difference between Scotland and the rest of the UK was that the higher rate limit was frozen in Scotland. However, the draft budget for 2018 / 19 proposes new rates and bands that would mark a real change from the rest of the UK. Notes Jump up ^ `` The Poor Law ''. www.elizabethan-era.org.uk. Retrieved 2016 - 10 - 08. Jump up ^ Hylton B. Dale, `` The Worshipful Company of the Woodmongers and the Coal Trade of London. '' Journal of the Royal Society of Arts ( 1922 ) : 816 -- 823. in JSTOR Jump up ^ Michael Edward Turner and Dennis R. Mills, eds., Land and property : the English land tax 1692 -- 1832 ( St. Martin 's Press, 1986. ) Jump up ^ Herber, Mark D ( 1997 ). Ancestral Trails : The complete guide to British genealogy and family history. Sutton Publishing Ltd. ISBN 0 - 7509 - 1418 - 1. p. 416 Jump up ^ John Stuart Mill, Principles of Political Economy, Bk. V, Ch. 3, Section 5 Jump up ^ HM Revenue & Customs Archived 2010 - 07 - 24 at the Wayback Machine. `` Nicholas Vansittart was Chancellor when Napoleon was defeated ( in 1815 ). His inclination was to maintain some tax on income, but public sentiment and the opposition were against him. A year after Waterloo, income tax was repealed ' with a thundering peal of applause ' and Parliament decided that all documents connected with it should be collected, cut into pieces and pulped. '' ^ Jump up to : UK Retail Price Index inflation figures are based on data from Clark, Gregory ( 2017 ). `` The Annual RPI and Average Earnings for Britain, 1209 to Present ( New Series ) ''. MeasuringWorth. Retrieved November 6, 2017. Jump up ^ Wolverhampton Archives Archived 2006 - 10 - 23 at Archive.is Jump up ^ `` A tax to beat Napoleon ''. HM Revenue & Customs. Archived from the original on 2010 - 07 - 24. Retrieved 2007 - 01 - 24. Jump up ^ HM Revenues & Customs, `` A brief history of income tax ''. `` Archived copy ''. Archived from the original on 2010 - 07 - 24. Retrieved 2010 - 12 - 09. ^ Jump up to : Id. Jump up ^ UK CPI inflation numbers based on data available from Lawrence H. Officer ( 2010 ) `` What Were the UK Earnings and Prices Then ? '' MeasuringWorth. Jump up ^ HM Revenues & Customs, `` Income tax is back ''. http://www.hmrc.gov.uk/history/taxhis2.htm Jump up ^ Norman Gash, Sir Robert Peel : The Life of Sir Robert Peel after 1830 ( 1971 ) pp 291 +, 318 +, 459 + Jump up ^ HM Revenue & Customs, `` A brief history of the income tax '' at 3. http://www.hmrc.gov.uk/history/taxhis3.htm Jump up ^ A.J.P. Taylor, English History 1914 -- 1945 ( 1965 ) pp 40 -- 41. Jump up ^ M.J. Daunton, `` How to Pay for the War : State, Society and Taxation in Britain, 1917 -- 24, '' English Historical Review ( 1996 ) 111 # 443 pp. 882 -- 919 Jump up ^ IFS : Long - Term trends in British Taxation and Spending Jump up ^ Thatcher Economics Jump up ^ 1979 budget Jump up ^ 1988 budget Jump up ^ REV BN 40 : Tax Treatment Of Pre-Owned Assets Jump up ^ ceu@scotland.gsi.gov.uk, Scottish Government, St. Andrew 's House, Regent Road, Edinburgh EH1 3DG Tel : 0131 556 8400. `` Scottish Income tax 2017 / 18 ''. www. gov. scot. Retrieved 29 January 2018. Jump up ^ `` Scottish income tax changes unveiled ''. BBC News. BBC. 14 December 2017. Retrieved 29 January 2018. Further reading Beckett, John V. `` Land Tax or Excise : the levying of taxation in seventeenth - and eighteenth - century England. '' English Historical Review ( 1985 ) : 285 -- 308. in JSTOR Burg, David F. World History of Tax Rebellions : An Encyclopedia of Tax Rebels, Revolts, and Riots from Antiquity to the Present ( Routledge, 2004 ) Daunton, Martin. Trusting Leviathan : the politics of taxation in Britain, 1799 -- 1914 ( Cambridge University Press, 2007 ) Dowell, Stephen. History of Taxation and Taxes in England ( Routledge, 2013 ) Emory, Meade. `` The Early English Income Tax : A Heritage for the Contemporary. '' American Journal of Legal History ( 1965 ) : 286 -- 319. in JSTOR O'Brien, Patrick K. `` The political economy of British taxation, 1660 ‐ 1815. 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Question: when was income tax introduced in the uk
Answer: 1842