Land Tax (England)

Taxes on land date back to the Norman Conquest and beyond, and the English Land Tax introduced in 1692 was a natural development. A Land Tax had also applied in Scotland from 1667.[1][2] After the Act of Union in 1707, the Scottish charge was included in the Act of the London Parliament. The Land Tax was abolished in 1963.[3]

The 1692 Land Tax aimed to capture income from all sources: business, employment and land (the main source of wealth in 1692 and for many years afterwards). In a sense it was a general income tax, although income was not itself assessed. The State lacked the administrative machinery to measure actual income. Instead, income was calculated indirectly by reference to the deemed yield from the capital value of assets, to which was applied a rate of 4/- (four shillings) in the pound (20%). However, despite this, it soon proved impracticable to collect much tax from business and employment, and the main yield of the tax came from the charges on land. Hence before long the tax came to be called the Land Tax, and the annual Land Tax Acts used this name. The business and employment charges lingered on, and were repealed by 1877.

The charge on land in 1692 depended on a valuation of all property throughout the country to find its open market rental value. That value was the income subject to the tax. Because, no doubt, of the difficulty and expense of valuation, the same values were used in subsequent years. As time passed the original valuation become increasingly unrealistic and, moreover, the relative value of property in different areas changed, especially as the Industrial Revolution got underway. Poor land in places that became major powerhouses increased hugely in value. Surprisingly, however, there was never another valuation in the entire 271-year history of Land Tax, even though it was re-enacted annually until 1798, when it was made permanent. Naturally there were many complaints over the years about the unfair incidence of the tax, but MPs for the lightly taxed areas resisted reform.

In 1697, Land Tax became a quota tax. That is, after several years of falling yields, the government decided to abandon the attempt to measure assets. Instead, they raised a set sum from England and Wales based on the yield from the 1692 Act. That Act imposed a tax at 4/- in the pound and raised about £2 million. This is equal to, say, £300 million today. It is difficult to estimate present values of the pound in 1692, but the website Measuring Worth offers various yardsticks with a wide range of results. The figures given here are the lowest estimate. The quota Acts subsequently raised one of four sums depending on the budgetary requirements of the year: £2 million, £1.5 million, £1 million or £0.5 million using nominal rates of 4/-, 3/-, 2/- and 1/-. The rates were nominal because they were not used to calculate the annual amount. By the end of the eighteenth century 4/- had become the usual rate.

The quota Acts divided the total for England and Wales between towns and counties using the 1692 valuations, which were never revised. Land Tax Acts thereafter listed each town and county by name together with the amount of quota due. The amounts due from each place only changed in proportion to the fixed sum for the whole country. For example, if the rate was 4/- a place might have to pay £10,000 out of the £2 million total. If the rate was 2/-, the total for the country became £1 million, and the place would have to pay £5,000. Unpaid local worthies were appointed by the Acts to run the tax, and they split the total for their area down to parishes and individual properties in proportion to the 1692 valuations. Usually the Commissioners carried the same valuation for each property forward from one year to the next. After the Act of Union in 1707, the annual Land Tax Act also included a fixed sum for Scotland.

Nor was there a new valuation in 1798, when the Land Tax was made permanent, although some MPs complained that the government was setting historic injustices in stone. Prime Minister William Pitt resisted a new valuation on the grounds that the 1692 figures had been used for 100 years despite the annual opportunity for reevaluation when the tax was re-imposed. Parliament had had plenty of chances to reform, and had been content to continue the old system; so there was no reason to change now. In the midst of war, Pitt probably had no time to undertake a new valuation.

Land Tax was made permanent because Pitt, desperate for money during the wars with France, devised a scheme to offer property owners the option to buy out (redeem) future Land Tax by paying a lump sum. The government gave up its future stream of tax for an immediate capital payment. It was necessary for Land Tax to be converted from an annual tax into a permanent tax so there would be a permanent obligation that could be sold. Otherwise, property owners would be unlikely to pay a large lump sum to redeem a tax which might not be re-imposed in the future. The scheme was a reasonable success. The annual Land Tax yield was then about £2 million (say £157 million today) and about a quarter was redeemed by the end of 1800, producing just over £9 million (say £710 million today) for the government. Over the next 50 years only an additional £400,000 of Land Tax was redeemed, despite attempts to make the option more attractive. After 1800, the value of Land Tax to the government continued to decline, partly because of redemption and partly because of inflation.

For most of the eighteenth century, the bulk of government revenue came from customs and excise—taxes on everyday goods such as salt, candles, leather, beer, soap and starch, as well as luxury goods like wine, brandy, silks, gold and silver thread, silver plate, horses, coaches and hats. In the middle of the eighteenth century, the Land Tax accounted for about 15% of the total tax revenue.