This is my second article in a week long series on the key personal tax changes that came into affect in April 2008. For the others, please see the introduction to 2008 tax changes.

10% tax rate abolished

Sunday saw the scrapping of the 10 per cent starter rate (also called the 10p rate) for the first £2,230 of taxable income. The move was introduced in conjunction with a reduction from 22 per cent to 20 per cent on the basic rate of tax on income of up to £36,000 a year.

While everyone with taxable income will be due to pay more tax on the lower portion of their earnings because of the 10% band’s abolition, those on better salaries won’t notice because they’ll gain more from the cut from 22% to 20% than they’ll lose on the 10% band scrapping.

The lower-paid will notice, however. The Institute for Fiscal Studies has said a total of 5.3 million households will see their take-home pay fall as a result of the change, particularly people earning between £5,200 and £18,500. (When your earnings are greater you’ll start to benefit more from the basic rate cut to 20% than you’ll lose on the abolishing of the lower 10% band, while those earning less than £5,435 don’t pay income tax at all).

You can see the Goverment’s website for a detailed picture of personal tax allowances and rates.

Why is a Labour Government taxing the poor?

The Government argues it will make up the shortfall for the lowest paid and vulnerable with child tax credits and other state handouts; people over 65 get higher personal allowances, for instance.

That’s done nothing to stop a row erupting, driven by an unlikely alliance between David Cameron and the more right-wing media, and Labour MPs and other leftwingers who baulk at tax hikes for the poorest workers. There is even confident talk of getting the abolition overturned.

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In gloomy accord with Nationwide seeing UK house prices falling across every single region for the first time in 30 years, Halifax has now released monthly figures for March estimating UK house prices have dropped 2.5%. Some areas are down twice that.

House prices have now fallen year on year. In March 2007, Halifax had the average UK house price at £194,094. For March 2008 it’s down to £191, 556. (Halifax doesn’t highlight the fact, instead focusing on three month rolling averages to record a small year on year gain.)

Key data from the Halifax report

• House prices fell by 2.5% in March. Prices in Quarter 1 were 1.0% lower than in 2007 Quarter 4. House prices in March were 1.1% higher than a year earlier.
• The biggest rises were in Greater London (1.6%), East Anglia (1.4%) and East Midlands (2.2%).
• There were price falls in a number of regions, with the biggest falls in West Midlands (-5.0%) and Wales (-4.7%).

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This is the first in my special five-part series entitled Five big boring tax changes that will make you richer or poorer in 2008/09. For the others, please see the introduction to the series.

From April 6th 2008, ISA rules for UK residents change as follows:

• Your annual total ISA allowance rises to £7,200, and the stupid ‘maxi’ and ‘mini’ ISA distinction is abolished.
• Instead, you can get a cash ISA and/or a Stocks & Shares ISA.
• You can invest from £0 to £3,600 in a cash ISA during the year, and the balance (up to your total of £7,200) into a Stocks & Shares ISA.
• Personal Equity Plans (PEPs) held from the 1990s are reclassified as Stocks & Shares ISAs.
• You will be able to convert cash ISAs into Stocks & Shares ISAs in the future, but not vice-versa.

Why you should use ISAs to save tax

ISAs (Individual Savings Accounts) are a UK investor’s best friend – arguably better than personal pensions. You can hold loads of different types of assets in them, including shares, cash, investment trusts, unit trusts, and bond funds, and you don’t have to pay extra tax on the income you receive in them. Nor do you pay on capital gains on investments held in an ISA when you sell.

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