Interest and Dividend tax allowance

For 2106/17 how will the £5000 nil rate on interest and the £5000 nil rate on dividends work together?
For example, if person A has £8500 earned income, £6500 interest income and £6000 dividend income. Would they pay zero tax (PA £11000, SPA £1000, Dividend and Interest £5000 each at nil rate). Or pay tax of £1000 as their total taxable income exceeds £17000 and so they lose the £5000 interest tax allowance at zero rate?
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  • In response to Joanne - no, s16 simply prescribes the hierarchy for allocating income to the different rate bands whereas s25(2) allows the taxpayer to "deduct the reliefs and allowances in the way which will result in the greatest reduction in the taxpayer's liability to income tax". S23 provides the seven step method for calculating tax and Step 2 deducts reliefs and allowances in accordance with s25 before Step 4 calculates tax at the appropriate rates (where s16 would indeed apply).
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