How the UK Used to Tax Wealth and What We Forgot

24th January 2026

There is a widespread belief in modern British politics that taxing wealth is somehow un-British, economically reckless, or electorally impossible.

History tells a very different story. For much of the twentieth century, the UK taxed wealth, property and unearned income more heavily and more consistently than it does today, while still achieving periods of strong growth, rising home ownership and expanding public services.

Understanding this history matters, because it shows that today's tax system is not the product of timeless economic truth, but of relatively recent political choices.

Post-war Britain - High Wealth Taxes, Strong Growth

From the end of the Second World War through to the late 1970s, the UK operated a tax system that was explicitly redistributive.

Income and capital

Top rates of income tax exceeded 80% for long periods

Capital income was often taxed at similar or higher rates than earned income

Unearned income surcharges applied to dividends and interest

Estates and inheritance

Estate Duty (the predecessor to inheritance tax) was steeply progressive

Large estates faced rates that would now be politically unthinkable

Despite this:

Home ownership rose steadily

Real wages increased

Public services expanded dramatically (NHS, education, social housing)

The UK did not collapse under these taxes; instead, it rebuilt itself.

Property Taxes Were Once Central, Not Marginal
Rates and values

Local government finance in the UK was historically based on rates—a property tax levied on rental values and regularly reassessed. Although imperfect, the system had two features notably absent today:

Regular revaluation

A clearer link between local taxation and local services

By contrast, today's council tax is based on 1991 property values, making it increasingly regressive over time. In effect, Britain has frozen one of its main wealth taxes while property wealth has exploded.

Capital Gains: Once Treated Like Income

When Capital Gains Tax (CGT) was introduced in 1965, it was explicitly designed to stop wealth escaping taxation.

CGT rates were aligned with income tax

Reliefs were limited

The principle was clear: gains from assets should not be privileged over wages

Over time, CGT rates were cut, allowances expanded, and exemptions multiplied—particularly benefiting those with substantial assets rather than those who rely on earnings.

The 1980s Shift: From Wealth to Work

The most dramatic change came in the 1980s and 1990s.

Key changes

Top income tax rates slashed

Capital gains taxed at much lower rates than income

Estate Duty replaced with a narrower inheritance tax

Council tax introduced with fixed bands, replacing rates

Financial deregulation increased the value of capital assets

This marked a structural shift: the tax burden moved away from wealth and onto work and consumption. The long-term effects are still visible:

Rising wealth inequality

Greater reliance on income tax and National Insurance

Chronic underfunding of local government

The Myth of "We Tried Wealth Taxes and They Failed"

Opponents of wealth taxation often argue that Britain "tried and abandoned" such taxes. In reality:

Many taxes were deliberately weakened, not proven unworkable

Avoidance increased because systems were under-resourced, not inherently flawed

Political priorities changed, rather than economic evidence

Other countries modernised wealth and property taxes rather than dismantling them. The UK largely chose the opposite path.

What History Suggests for Today[b]

History shows three crucial things:

Wealth taxation is not radical in UK terms
Today’s system is historically unusual in how lightly it taxes property and assets.

Economic growth and wealth taxation are not incompatible
The UK’s fastest improvements in living standards occurred during periods of higher taxation on wealth and high incomes.

Political choices matter more than technical feasibility

The UK once taxed wealth because it believed social stability and shared prosperity required it.

[b]The Forgotten Precedent

The debate over taxing wealth is often framed as a leap into the unknown. In reality, it is a return to older British norms. The UK has taxed wealth before—more heavily, more openly, and with fewer apologies than today.

What has changed is not economic necessity, but political confidence. Rediscovering this history does not mandate copying the past wholesale, but it does puncture the idea that wealth taxation is alien, impossible or unprecedented in Britain.