The 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.

Background

Prior to the formation of the Kingdom of Great Britain in 1707 and the United Kingdom in 1801, 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 by the Poor Relief Act 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 Parliament at the request of Charles II was a duty on coal entering London, to help pay for the rebuilding of the City of London after the Great Fire in 1666. A clause in the Rebuilding of London Act 1666 specified a charge of one shilling per chauldron, a rate increased to three shillings in the Rebuilding of London Act 1670 (to help reconstruct St Paul's Cathedral). The tax was eventually repealed in 1889.

In 1692, the Parliament of England introduced its 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

When the Kingdom of Great Britain came into being on 1 May 1707, the window tax, which had been introduced across England and Wales under the Taxation (No. 3) Act 1695 (7 & 8 Will. 3. c. 18), An Act for granting to His Majesty severall Rates or Duties upon Houses for making good the Deficiency of the clipped Money p.416 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 () 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 (equivalent to £ in ), and those with above twenty windows paid eight shillings (equivalent to £ in ).

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 () on incomes over £60 (equivalent to £ in ), 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 example, the Bank of England would deduct an amount, to be paid as tax, from interest paid to holders of gilt-edged securities. 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 they 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 1804. The one major change he made was to raise the maximum rate back to 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 of the Exchequer 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, for 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, 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 imposing tariffs on imported corn (wheat and barley) that was cheaper than that produced at home – and lost the support of much of his party. The Whigs resumed power in the same year, 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 when he was aged 82.

Disraeli and Gladstone agreed about little, although both promised to repeal income tax at the 1874 general election. Disraeli won, and the tax remained.

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.

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 of Commons 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