The Smuggling Act 1765 was one of the suite of legislation enacted alongside the Revestment to suppress the Isle of Man's role as a centre for the redistribution of dutiable goods. Together with the Purchase Act and the Mischief Act, it formed the legal framework by which the British government sought to bring the Island's trade under direct Crown control and prevent its use as a base for evading British and Irish customs duties.

The ground had been prepared the year before. The English Commissioners reported on 4 January 1764 respecting smuggling from the Isle of Man, and an Act of Parliament on the same subject followed in that year, both of which the Manx bibliographers list.

Enforcement was put in one man's hands and resented accordingly. The Lords of the Treasury appointed Charles Lutwidge to implement the anti-smuggling laws that came with the Revestment, and he had almost unchecked influence at the Treasury for years. Governor Smith wrote in 1774 that he found the actions of the late Receiver General illegal and arbitrary every day, and in the 1780s was pressing that Lutwidge was dishonest and his accounts should be audited, calling his impunity a curse to the Isle of Man.

The trade it was meant to stop did not stop. J. C. Curwen told the Commons in 1805 that no inconsiderable proportion of the duties arising in the Isle of Man were on goods paying low duties which were afterwards clandestinely re-shipped and smuggled back into England. Spencer Walpole's formulation is the one Manx writers quote: smuggling, paradoxical as the statement may seem, has in every country been the creation of law, since the difficulties law imposed and the exactions it levied on the trader had alone called the smuggler into being and made his calling profitable.