Dividends and the Personal Allowance 2026/27
The Personal Allowance (£12,570 in 2026/27) can absorb dividend income if your salary does not fully use it. This guide explains the order of income for tax purposes, when the allowance applies to dividends, and how to calculate the result.
Published by the UK Money Calculators editorial team. Last updated for the 2026/27 tax year.
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
Scenario: Salary £8,000, dividends £9,000 in 2026/27.
- Personal Allowance: £12,570. Salary of £8,000 uses £8,000 of it.
- Remaining Personal Allowance: £12,570 − £8,000 = £4,570. This covers £4,570 of dividend income tax-free.
- Dividend allowance: next £500 of dividends is also tax-free.
- Tax-free dividends: £4,570 + £500 = £5,070.
- Taxable dividends: £9,000 − £5,070 = £3,930.
- All remaining income is within the basic-rate band (total income £17,000 — well below £50,270).
- Dividend tax: £3,930 × 8.75% = £423.
- Total dividend tax: £423.
Without the unused Personal Allowance, tax would have been £8,500 × 8.75% = £914. The unused Personal Allowance saves £491 of dividend tax in this example.
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 × 8.75% = £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.