pochisoldi wrote:If you assign £1000 of personal allowance to dividends you save £1000 *7.5% tax = £75
If you assign £1000 of personal allowance to salary you save £1000 * 20% tax = £200 - you gain £125
(For a higher rate tax payer the rates are 40%/32.5% and you gain £75)
No brainer - if you have a choice use your personal allowance against salary not dividends.
in most situations, that's correct, but not in melonfool's situation, nor in the similar situation in "2.6 Example 6".
in these (edge) cases:
if you assign £1000 of personal allowance to salary, you save £1000 * 20% tax = £200.
if you assign £1000 of personal allowance to dividends, you save £1000 * 32.5% tax = £325.
so it's better to assign it to dividends.
these edge cases didn't exist before the 2016/17 tax year (when the dividend allowance was introduced). before that, i think you did always get the correct result by always assigning personal allowance against salary in the first place.