Dividends and the Personal Allowance 2026/27
This is the bit that trips people up: the Personal Allowance (£12,570)1 and the £500 dividend allowance2 are two different things. If your salary doesn't use up the full £12,570, the leftover can shelter dividends — and only then does the separate £500 kick in on top. Get the order right and low earners can take a surprising amount of dividends tax-free.
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Your 2026/27 dividend tax, after any unused Personal Allowance and the £500 dividend allowance.
England, Wales or NI bands; dividends are taxed the same in Scotland. For pension contributions and more detail, use the full dividend tax calculator.
No dividend tax to pay on these figures. Free next step: see how the Personal Allowance and the £500 allowance cover dividends
- The Personal Allowance is £12,5701 and applies to salary and pension first — dividends are the top slice.
- Any unused Personal Allowance shelters dividends tax-free, then the £500 dividend allowance2 applies on top.
- The two allowances are separate2 — the £500 doesn't reduce the £12,570 or vice versa.
- A £40,000 salary leaves nothing of the Personal Allowance for dividends, but you still get the full £500.
- Above £100,000 the Personal Allowance tapers away1, reaching £0 at £125,140.
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The Personal Allowance in 2026/27
The Personal Allowance for 2026/27 is £12,570. It has been frozen at that level since April 2021. You can earn up to £12,570 before paying income tax.
The allowance tapers for higher earners. For every £2 above £100,000 you lose £1 of allowance. At £125,140 it reaches zero. Above that there is no Personal Allowance at all.
Order of income: salary first, dividends last
HMRC applies the Personal Allowance in a fixed order:
- Non-savings income — employment income, pensions, self-employment or property profits. The Personal Allowance goes here first.
- Savings income — bank interest, bond income.
- Dividend income — dividends from shares, funds and unit trusts. Sits on top.
Dividends are at the top of the stack. The Personal Allowance can only reach dividend income if there is unused allowance left after non-savings income is accounted for. If your salary hits £12,570 or above, nothing remains for dividends.
The dividend allowance is separate
The £500 dividend allowance is completely separate from the Personal Allowance. It applies to dividend income specifically, whether or not any Personal Allowance is left. A basic-rate taxpayer on a £40,000 salary has no Personal Allowance available for dividends but still gets the full £500 dividend allowance. The two don't interact or reduce each other.
Worked example: low salary, dividends use remaining Personal Allowance
Salary £8,000, dividends £9,000 in 2026/27. The salary only uses £8,000 of the Personal Allowance, so £4,570 is left over to shelter dividends — and the £500 dividend allowance stacks on top of that.
| Salary (uses £8,000 of the Personal Allowance) | £8,000 |
| Dividends | £9,000 |
| Unused Personal Allowance sheltering dividends | £4,570 |
| Dividend allowance (0%) | £500 |
| Taxable dividends (£9,000 − £4,570 − £500) | £3,930 |
| £3,930 taxed at 10.75% (total income £17,000, all basic rate) | £422.48 |
| Total dividend tax | £422.48 |
With no unused Personal Allowance (see the next example), the tax on £9,000 of dividends would be £913.75. The £4,570 of spare allowance is worth about £491 here — a real reason for low earners and couples to keep one salary below £12,570.
Worked example: full salary, no Personal Allowance for dividends
Scenario: Salary £30,000, dividends £9,000 in 2026/27.
- Salary of £30,000 exceeds the Personal Allowance — no unused allowance for dividends.
- Dividend allowance: first £500 of dividends is tax-free.
- Taxable dividends: £9,000 − £500 = £8,500.
- Total income: £39,000 — still within the basic-rate band.
- Dividend tax: £8,500 × 10.75% = £914.
- Total dividend tax: £914.
The Personal Allowance taper above £100,000
Above £100,000 adjusted net income, you lose £1 of Personal Allowance for every £2 earned above that. At £125,140 it hits zero.
In the taper zone, dividend income counts toward your adjusted net income and can speed up the loss of the allowance. That pushes your effective marginal rate above the headline rate. Pension contributions can bring adjusted net income down and restore some or all of the allowance.
See how your allowances affect your dividend tax
Enter your salary and dividend income to get a full breakdown of how the Personal Allowance and dividend allowance interact.
Use the calculatorOver £100,000? Dividends and the £100k trap, with a worked example
Sources & references
Every headline figure in this guide is drawn from the official HMRC and GOV.UK sources below and reflects the confirmed 2026/27 rates. Each link opens the relevant official page in a new tab.
- Income Tax rates and Personal Allowances ↗ https://www.gov.uk/income-tax-rates
- Tax on dividends ↗ https://www.gov.uk/tax-on-dividends
Frequently asked questions
Can I use my personal allowance against dividend income?
Does the dividend allowance reduce the personal allowance?
When do dividends use the personal allowance?
Can a couple use two Personal Allowances against dividends?
Do dividends count towards losing my Personal Allowance over £100,000?
Disclaimer: General information, not tax advice. The examples assume the standard £12,570 Personal Allowance; the Marriage Allowance or the £100,000 taper would change it.