Traditional story about collecting a penny tax in Anglo-Saxon England (8)
I believe the answer is:
danegeld
'tax in anglo-saxon england' is the definition.
(term for a tax in Anglo-Saxon England)
'traditional story about collecting a penny' is the wordplay.
'traditional story' becomes 'legend' (I've seen this before).
'about' says the letters should be written in reverse.
'collecting' means one lot of letters goes inside another.
'penny' becomes 'd'.
'legend' backwards is 'dnegel'.
'dnegel' enclosing 'a' is 'danegel'.
'danegel'+'d'='DANEGELD'
(Other definitions for danegeld that I've seen before include "Fighting bird" , "land-tax" , "Protection money (once)" , "previous tax system" , "Tax in Anglo-Saxon times paid to invaders" .)