it produced over 10 percent of government's annual revenues through the 1840s. The house tax mostly hit London town houses; the windows tax mostly hit country manors. Peel's income tax The income tax was reintroduced by Sir Robert Peel in the Income Tax Act 1842. Peel, as a Conservative, had opposed income tax in the 1841 general election, but a growing budget deficit required a new source of funds. The new income tax of 7d in the pound (about 2.9%), based on Addington's model, was imposed on annual incomes above £150 (equivalent to £ as of ). First World War The war (1914-1918) was financed by borrowing large sums at home and abroad, by new taxes, and by inflation. It was implicitly financed by postponing maintenance and repair, and canceling capital expenditure. The government avoided indirect taxes because they raised the cost of living, and caused discontent among the working class. There was a strong emphasis on being "fair" and being "scientific". The public generally supported the heavy new taxes, with minimal complaints. The Treasury rejected proposals for a stiff capital levy, which the Labour Party wanted to use to weaken the capitalists. Instead, there was an excess profits tax, of 50% on profits above the normal pre-war level; the rate was raised to 80% in 1917. Excise taxes were added on luxury imports such as automobiles, clocks and watches. There was no sales tax or value added tax. The main increase in revenue came from the income tax, which in 1915 went up to 3s. 6d in the pound (17.5%), and individual exemptions were lowered. The income tax rate increased to 5s. (25%) in 1916, and 6s. (30%) in 1918. Altogether, taxes provided at most 30% of national expenditure, with the rest from borrowing. The national debt soared from £625 million to £7,800 million. Government bonds typically paid 5% p.a. Inflation escalated so that the pound in 1919 purchased only a third of the basket it had purchased in 1914. Wages were laggard, and the poor and retired were especially hard hit. Modern rules Britain's income tax has changed over the years. Originally it taxed a person's income regardless of who was beneficially entitled to that income, but now tax is paid on income to which the taxpayer is beneficially entitled. Most companies were taken out of the income tax net in 1965 when corporation tax was introduced. These