Tax on Income + Savings Interest + Dividends

noh

You are not able to allocate the personal allowance in that way.
The order in which income is taxed is set out in legislation.
£6000 pension plus £6500 of the savings interest would use up the £12500 allowance
£5000 of savings interest would use the Starting rate at 0%
The remaining £500 of interest would use £500 of the PSA taxed at 0%
The £3000 of dividends would use the £2000 dividend allowance with £1000 taxed at 7.5%
Therefore on the mix of income stated there would be £75 tax due.

Dazed_and_C0nfused

You are not able to allocate the personal allowance in that way.

Not true.

The order in which income is taxed is set out in legislation.

True.  Once the Personal Allowance has been allocated.

noh

Dazed_and_C0nfused said:

You are not able to allocate the personal allowance in that way.

Not true.

The order in which income is taxed is set out in legislation.

True.  Once the Personal Allowance has been allocated.

Can you point me to the primary legislation or to a HMRC website that states you can allocate the personal allowance in the way you describe.?
I wasn't aware it was possible.

Dazed_and_C0nfused

Can't post links but this is an extract from an old HMRC document which comes up on Google.

HMRC Agent Briefing – 2016-17 Self Assessment Individual Exclusions

What happened?

The changes arising from Personal Savings and Dividend Taxation Reform effective April 

2016, mean that it is more beneficial for some customers to allocate (some of) their Reliefs 

and Allowances (e.g. Personal Allowance) against dividend income before savings income.

xylophone

Pension income is £6000, leaving £6,500 of PA unused.
£12,000 - £6,500 = £5,500.
£5,000  @ 0% (uses savings nil rate)
£500 @ 0%   (uses £500 of PSA)
Therefore no tax on pension and savings income combined.
£3000 dividends      £2000 @ 0%   £1000  @ 7.5%
Thus tax due of £75 UNLESS  the £500 of unused personal savings allowance can be used against dividend income in which case the tax due is £37.50

https://www.litrg.org.uk/tax-guides/tax-basics/what-tax-rates-apply-me#tom
Sadly the example Thomas 6 does not show dividend income.

Dazed_and_C0nfused

Don't agree sorry as the unused PSA/savings nil rate cannot be used against dividends.

So I'll answer my own question.

If you allocate the Personal Allowance like shown below what income is left to be taxed?
£6,000 Pension
£6,000 Interest
£500 Dividends

£0 Pension

£6,000 Interest

£2,500 Dividends

Which would be taxed

£5,000 interest x 0% = £0.00

£1,000 interest x 0% = £0.00

£2,000 dividends x 0% = £0.00

£500 dividends x 7.5% = £37.50

noh

I have googled it and have found that I was incorrect and the tax payer can allocate their personal allowance in the way that is most advantageous to them.
Your calculations are therefore correct and £37.50 is the amount of tax due.

https://www.icpa.org.uk/portal/hmrc/hmrc_agents_briefing_201617_individual_exclusions

RG2015

noh said:

Its £75 tax due.
You can't use the £500 unused PSA to offset the dividend income.

Dazed_and_C0nfused said:

You can't use the £500 unused PSA to offset the dividend income.

True but I think you are missing the point.  If you allocate the Personal Allowance like shown below what income is left to be taxed?

£6,000 Pension
£6,000 Interest
£500 Dividends

 I genuinely love this board for the insights it brings into the machinations of our tax system. It applies a scrutiny that is far more robust than either the government (no surprise there) or HMRC can bring to the labyrinth that confronts us. 

xylophone

https://www.barnesroffe.com/allocation-personal-allowance/  re allocation (but uses former PA and dividend allowance rate).

unholyangel

Dazed_and_C0nfused said:

You can't use the £500 unused PSA to offset the dividend income.

True but I think you are missing the point.  If you allocate the Personal Allowance like shown below what income is left to be taxed?

£6,000 Pension
£6,000 Interest
£500 Dividends

I think you were right the first time. Personall allowance is deducted at step 3. Starter savings rate is a rate at which it is charged under chapter 2, which doesn't come in until step 4. 

Which means personal allowance split of £6000 pension, £6500 interest and £0 dividend.