Prior to the introduction of the personal savings allowance, the dividend allowance, and the 0% band for savings income, it was a straightforward exercise to allocate the personal allowance (PA). Students who have studied tax will have been used to deducting it from non-savings first, then savings, and lastly dividends. Whilst income still has to be taxed in this order, the PA should be allocated in the most efficient way.
If non-savings are less than the PA, it is usually better to allocate enough to reduce non-savings to nil and then consider whether to apply to savings or dividends next. If savings would be taxed at 0% or would be covered by the savings allowance, then there is no point in allocating any PA here. Instead, look to dividends. However, if some savings would be taxed at 20% and dividends at 7.5%, it would be better to allocate enough PA to any savings that would be taxed at 20% and give any remainder to dividends. Where non-savings are greater than the PA, it may prove more tax-efficient to allocate only part of the PA to non-savings, leaving the remainder for savings or dividends.
The following examples illustrate some of the above.