diff --git a/compiler/rename/RnTypes.hs b/compiler/rename/RnTypes.hs
index 91d697899ab48307f6d769fd2d0768bc1e201970..9cf78c23380c953ed11cae4341e97756b624914f 100644
--- a/compiler/rename/RnTypes.hs
+++ b/compiler/rename/RnTypes.hs
@@ -1692,18 +1692,20 @@ extract_tv t_or_k ltv@(L _ tv) acc
   | isRdrTyVar tv = case acc of
       FKTV kvs k_set tvs t_set all
         |  isTypeLevel t_or_k
-        -> do { when (occ `elemOccSet` k_set) $
+        -> do { when (not_exact && occ `elemOccSet` k_set) $
                 mixedVarsErr ltv
               ; return (FKTV kvs k_set (ltv : tvs) (t_set `extendOccSet` occ)
                              (ltv : all)) }
         |  otherwise
-        -> do { when (occ `elemOccSet` t_set) $
+        -> do { when (not_exact && occ `elemOccSet` t_set) $
                 mixedVarsErr ltv
               ; return (FKTV (ltv : kvs) (k_set `extendOccSet` occ) tvs t_set
                              (ltv : all)) }
   | otherwise     = return acc
   where
     occ = rdrNameOcc tv
+    -- See Note [TypeInType validity checking and Template Haskell]
+    not_exact = not $ isExact tv
 
 mixedVarsErr :: Located RdrName -> RnM ()
 mixedVarsErr (L loc tv)
@@ -1716,3 +1718,37 @@ mixedVarsErr (L loc tv)
 -- just used in this module; seemed convenient here
 nubL :: Eq a => [Located a] -> [Located a]
 nubL = nubBy eqLocated
+
+{-
+Note [TypeInType validity checking and Template Haskell]
+~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
+extract_tv enforces an invariant that no variable can be used as both a kind
+and a type unless -XTypeInType is enabled. It does so by accumulating two sets
+of variables' OccNames (one for type variables and one for kind variables) that
+it has seen before. If a new type variable's OccName appears in the kind set,
+then it errors, and similarly for kind variables and the type set.
+
+This relies on the assumption that any two variables with the same OccName
+are the same. While this is always true of user-written code, it is not always
+true in the presence of Template Haskell! GHC Trac #12503 demonstrates a
+scenario where two different Exact TH-generated names can have the same
+OccName. As a result, if one of these Exact names is for a type variable
+and the other Exact name is for a kind variable, then extracting them both
+can lead to a spurious error in extract_tv.
+
+To avoid such a scenario, we simply don't check the invariant in extract_tv
+when the name is Exact. This allows Template Haskell users to write code that
+uses -XPolyKinds without needing to enable -XTypeInType.
+
+This is a somewhat arbitrary design choice, as adding this special case causes
+this code to be accepted when spliced in via Template Haskell:
+
+  data T1 k e
+  class C1 b
+  instance C1 (T1 k (e :: k))
+
+Even if -XTypeInType is _not enabled. But accepting too many programs without
+the prerequisite GHC extensions is better than the alternative, where some
+programs would not be accepted unless enabling an extension which has nothing
+to do with the code itself.
+-}
diff --git a/testsuite/tests/th/T12503.hs b/testsuite/tests/th/T12503.hs
new file mode 100644
index 0000000000000000000000000000000000000000..517c4ba156b644e4244673a155c093f4da1150cb
--- /dev/null
+++ b/testsuite/tests/th/T12503.hs
@@ -0,0 +1,29 @@
+{-# LANGUAGE KindSignatures #-}
+{-# LANGUAGE PolyKinds #-}
+{-# LANGUAGE TemplateHaskell #-}
+{-# LANGUAGE TypeFamilies #-}
+module T12503 where
+
+import Language.Haskell.TH
+
+data T1 k
+class C1 a
+
+$(do TyConI (DataD [] tName [ KindedTV kName kKind] _ _ _)
+       <- reify ''T1
+     d <- instanceD (cxt [])
+                    (conT ''C1 `appT`
+                      (conT tName `appT` sigT (varT kName) kKind))
+                    []
+     return [d])
+
+data family T2 (a :: b)
+data instance T2 b
+class C2 a
+
+$(do FamilyI (DataFamilyD tName _ _) [DataInstD [] _ [tyVar] _ _ _]
+       <- reify ''T2
+     d <- instanceD (cxt [])
+                    (conT ''C2 `appT` (conT tName `appT` return tyVar))
+                    []
+     return [d])
diff --git a/testsuite/tests/th/all.T b/testsuite/tests/th/all.T
index 9a08b6542cc5687abafd080a00403a81c6bb75e7..56aca1a9781e9405f351ca178d0dd024f21b5636 100644
--- a/testsuite/tests/th/all.T
+++ b/testsuite/tests/th/all.T
@@ -363,6 +363,7 @@ test('T12478_2', omit_ways(['ghci']), compile_and_run, ['-v0'])
 test('T12478_3', omit_ways(['ghci']), compile, ['-v0'])
 test('T12478_4', omit_ways(['ghci']), compile_fail, ['-v0'])
 test('T12478_5', omit_ways(['ghci']), compile, ['-v0'])
+test('T12503', normal, compile, ['-v0'])
 test('T12513', omit_ways(['ghci']), compile_fail, ['-v0'])
 test('T12530', normal, compile, ['-v0 -ddump-splices -dsuppress-uniques'])
 test('T12646', normal, compile, ['-v0'])