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I found that the highest income tax rate was 99.25% during the Second World War, but I can't find anything related to the income tax during the First World War.

Would you have some numbers to give me regarding these taxes there were during, and at the end of WWI and WWII in the UK?

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    Having just completed a deep dive into Hansard in regards to the Income Tax, including the graduated Super Tax, I suggest that you remove Inheritance tax from this question and ask it separately. The relevant legislation is structured differently, and essentially requires two differently structured answers. – Pieter Geerkens Dec 15 '18 at 22:10
  • An historical perspective found in an article by Thomas Piketty: piketty.blog.lemonde.fr/files/2019/02/… – Evargalo Feb 12 at 9:24
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The Provisional Income Tax Act of 1913 (provisional because it was required to be renewed annually) remained in effect until 1953. The index for its complete debate history is in the Hansard archive.

The Finance Bill of 1918 was passed third reading in the House of Commons on June 21, 1918, after about 8 weeks of debate in both the House and the Ways and Means Committee, and by the House of Lords without amendment on July 4 that year. Effective for the fiscal year beginning April 6, 2018 and implemented under the provisions of the Provisional Income Tax Act 1913 was both a flat income tax, with corresponding tax relief for low income earners distinguished between earned income and unearned income, and a graduated super tax.

Income Tax

  1. "That—
    (a) Income Tax shall be charged for the year beginning the sixth day of April, nineteen hundred and eighteen, at the rate of six shillings in the pound, and the same additional Income Tax on the income from certain securities shall be charged for that year as was charged for the year beginning the sixth day of April, nineteen hundred and seventeen;

...

  • The "same additional Income Tax on the income from certain securities" is 2s. per pound sterling, or an additional 10%.

  • The phrase "certain securities" refers to specified foreign securities for which the Foreign Office had a permanent buy offer outstanding.

Relief (Earned Income)

  1. "That the relief given in respect of earned income shall be modified so as to allow relief only as follows, namely, relief by way of the reduction of the rate of the tax to:—
  • 2s. 3d. if the total income does not exceed five hundred pounds;
  • 3s. 0d. if the total income exceeds five hundred pounds and does not exceed one thousand pounds;
  • 3s. 9d. if the total income exceeds one thousand pounds and does not exceed one thousand five hundred pounds;
  • 4s. 6d. if the total income exceeds one thousand five hundred pounds and does not exceed two thousand pounds;
  • 5s. 3d. if the total income exceeds two thousand pounds and does not exceed two thousand five hundred pounds.

...

Relief (Unearned Income)

  1. "That the relief given to an individual in respect of unearned income shall be modified so as to be such as will reduce the rate of tax on his unearned income to—
  • 3s. if the total income does not exceed £500.
  • 3s. 9d. if the total income exceeds £500 but does not exceed £1,000.
  • 4s. 6d. if the total income exceeds £1,000 but does not exceed £1,500.
  • 5s. 3d. if the total income exceeds £1,500 but does not exceed £2,000.

...

Super Tax

  1. "That—

(a) the additional duty of Income Tax (called Super-tax) shall be charged, in respect of incomes which exceed £2,500, as follows:

  • in respect of the first £2,000 of the income Nil.
  • in respect of the excess over £2,000—
    • for every pound of the first £500 of the excess one shilling.
    • for every pound of the next £ 500 of the excess one shilling and sixpence.
    • for every pound of the next £1,000 of the excess two shillings.
    • for every pound of the next £ 1,000 of the excess two shillings and sixpence.
    • for every pound of the next £1,000 of the excess three shillings.
    • for every pound of the next £ 2,000 of the excess three shillings and sixpence.
    • for every pound of the next £2,000 of the excess four shillings.
    • for every pound of the remainder of the excess four shillings and sixpence.

...

This makes the top Earned Income tax rate on incomes over £10,000, for the fiscal year from 1918-04-06 to 1919-04-05:

R = 6s. + 4s. 6d. from 20s.
  = 10s. 6d. from 20s.
  = 126d. from 240d.
  = 52.50%.

Notes

  • Currency:

    • s. stand for shilling, of which there are 20 in a pound sterling; and
    • d. stands for pence, of which there are 12 in a shilling.
  • The flat Income Tax and graduated Super Tax were distinct to allow a very simple reporting form for the former, with the more complicated reporting form for the latter only required from individuals with higher incomes.

  • Earned Income is the accounting / tax term for income from employment. It may or may not include income from royalties, depending both on legislative prescription and the original source of the royalties.

  • Unearned Income is the corresponding term for income earned passively from property. This typically includes all of:

    • Rental Income;
    • Investment Income from equity securities; and
    • Interest Income from Bonds, annuities, and the like.
    • Income from royalties not otherwise included in Earned Income.

    For details of how these categories were defined during the Great War, the corresponding legislation would have to be looked at in detail. In the absence of a consolidated presentation, that is likely to be a very large effort; probably roughly equivalent to taking a one semester tax course.

    My interpretation is that the corresponding flat rate was paid on each class of income separately on the first £2,500 of income from that class. This was calculated and reported on the simple form. Then all those with a total (taxable) income in excess of £2,500 reported using the more complex form, and paid the Super Tax on that reported total (taxable) income.

    Yes, there were allowable deductions from income just like today. I did not make, and have no intention of ever making, the slightest attempt to parse these from Hansard records. Annual compilations of Income Tax Statues and Regulations are sold for > $100 ans SO rep is just not that valuable.

I did not encounter any mention of an income tax on capital gains.

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    Thank you for the wonderful answer. Unfortunately I have a hard time understanding most of it (guess english being my second language doesn't help!). So, according to you 52.50% was the highest income tax rate ? What I don't get is that Wikipedia says otherwise : "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." – Ushiromiya Dec 16 '18 at 0:53
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    Above is the Income Tax in effect for the final fiscal year (April 6, 1918, to April 5, 1919) of World War One, for Earned Income. The tax rate on Unearned Income from Foreign Securities Which the Foreign Office Desires to Purchase is at least 10% higher. I have not yet been able to determine the base rate for general Unearned Income carried over from 1917. Given the quantity of research required to trace this I believe each piece should be a separate question. (As I noted above in a comment to your question.) – Pieter Geerkens Dec 16 '18 at 1:11
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    I see, so the highest earned income tax rate was 52.50% in 1919. I will ask for the inheritence tax separately. I don't understand the difference between "Income Tax", "Unearned Income" and "Super Tax" though. – Ushiromiya Dec 16 '18 at 1:22
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    @Ushiromiya: Amended with another explanation. I believe (and hope) that I am done on this answer. – Pieter Geerkens Dec 16 '18 at 2:14

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