How to utilise Personal Allowance

After changes in dividend tax, free allocation of personal allowance can save you tax. Your tax calculator will not tell you that, because the automatic system offsets allowances and reliefs in order. Contact us now to discuss your specific situation.

In the last article, we discuss how to reach optimal level of salary and dividend (follow this link ) based on the assumption that the total gross income is within the basic rate band.

If your gross income is higher than £45,000, utilising personal allowance by allocating it to a different catalogue of income may save you tax.


Salary is £38,500, dividend is £10,000

Option 1: allocate PA to salary

Salary will be taxed at: £27,000 x 20% = £5,400

Dividend will be taxed at: £5,000 x 0% and £5,000 x 32.5% - £1,625

Total tax bill of option 1 is £7,025

Option 2: allocate part of PA to dividend income:

Salary will be taxed at: £32,000 x 20% = £6,400 (using £6,500 PA)

Dividend will be taxed at: £5000 x 0% (using £5,000 PA)

Total tax bill of option 2 is £6,400


You can save £625 on tax if you allocate the personal allowance to the most favourable way.

(last edited on 1 Jun 2017)


The above information and calculations are for illustrative purposes only. No liability is accepted by O’Brien S & Co Ltd for any actions or losses from investment in reliance on the information and calculations. Consult a qualified professional financial advisor before making any financial decisions. O’Brien S & Co Ltd holds the copyrights in all materials on the website. All rights reserved.

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