Percy was born in Gibraltar, the child of Edward Joscelyn Baumgartner (1815–1899), barrister and registrar of the Supreme Court of Gibraltar. The family later changed its name to Percy during the First World War, after the House of Percy to whom they were distantly related. He returned to England in 1884, and was educated at Queen Elizabeth's Grammar School in Sevenoaks and the Royal Military College, Sandhurst. He was commissioned into the East Lancashire Regiment in 1891.
After service in Ireland, Percy was posted to India and served in the 1894 Waziristan campaign and the 1895 Chitral Expedition. During the Second Boer War, he served in Robert's Horse. At Sanna's Post in 1900, he had his horse killed under him. He was mentioned in despatches twice and promoted to brevet major.