Back to the future: The UK tax system then and now

Monday, October 26 2015

Last Wednesday, 21 October 2015, was Back to the Future Day – the date Marty McFly and Doc Brown visited in the sci-fi film sequel Back to the Future Part II. 

A lot has changed since Marty and Doc jumped into the DeLorean back in 1985.  Thirty years ago, Margaret Thatcher was in her second term as Prime Minister.  1985 was the year that the first British mobile phone call was made, scientists of the British Antarctic Survey discovered the ozone hole and the Live Aid concerts raised millions to help those affected by the Ethiopian famine.  But what did the tax system look like?   
As in 2015, taxpayers were subject to a range of tax rates depending on their level of income.  Income up to the basic rate limit, then £16,200, was taxed at 30%, with excess income taxed at between 40% and 60%.  The tax free personal allowance was £2,205 or £3,455 for a married couple.  In 1985, a married couple’s income was aggregated and taxed on the husband – incredibly, it was not until 1990 that the government introduced independent taxation!

Capital transfer tax had not yet been replaced by the current inheritance tax, and was applied at rates of up to 60%.  The capital gains tax rate was 30% and there was a single rate of VAT, at 15%.  The main rate of corporation tax was 40%.    

In 1985, tax revenues were strong and the economy was growing.  In the Budget, then Chancellor Nigel Lawson announced major reforms to national insurance contributions, introducing new lower marginal bands and removing the ceiling on employers’ contributions.  These changes were, in part, financed by increases in excise duties – VAT was extended to take-away hot meals and the price of a car “tax disc” breached £100 for the first time.

In 2015, car tax can exceed £500, depending on fuel type and CO2 emissions.  There are now over 30 million cars on the UK’s roads, including an estimated 200 original DeLoreans*.  Great Scott! 

*The DeLorean Owners Club UK.

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