Dividend Purification: Exactly How Much of a £1,000 Dividend to Give Away
The dividend purification calculation is simple: take the percentage of a company's income that comes from impermissible (haram) sources, and multiply it by the dividend you received. If a Sharia-compliant company reports 3% impermissible income and you receive a £1,000 dividend, you give away £30 to charity with no expectation of reward. The remaining £970 is yours to keep, clean.
What "purification" actually means
Most Sharia-screened companies are not 100% pure. A retailer might earn a sliver of interest on its cash balances; a tech firm might hold bonds in its treasury. Sharia scholars permit Muslims to invest in such companies provided the impermissible income stays under a tight threshold (commonly 5% of total revenue under the AAOIFI standard). But "permitted to hold" is not the same as "permitted to keep every penny." The small impermissible portion that flows through to you in a dividend is not rightfully yours — so you remove it by giving it away. That removal is called purification (Arabic: tatheer or tazkiyah).
The intention matters as much as the mechanics. Purified money is donated without seeking reward — it is not sadaqah (voluntary charity) that earns you spiritual credit, because the money was never yours to give generously. It is a return of something that does not belong to you. This distinction drives almost every practical question further down this page, including the UK tax treatment.
Aisha, a software engineer in Manchester, holds shares in a Sharia-screened FTSE company inside her general investment account. In the 2026/27 tax year she receives a dividend of £1,000. The fund/index provider's purification report states the company's impermissible income ratio is 3% for the year.
Step 1 — find the impermissible percentage. Reported impermissible income = 3%.
Step 2 — apply the formula.
Purification amount = impermissible-income % × dividend received
= 3% × £1,000
= £30.
Step 3 — give it away. Aisha donates £30 to a charity (a food bank, a water charity, general welfare — not to a mosque building fund or anything she personally benefits from), with no expectation of reward.
Result: £970 of the dividend is purified income she can keep and spend freely. The £30 is gone, cleanly removed.
The purification formula
There is only one formula you need, and it is deliberately uncomplicated:
Purification = Impermissible-income % × Dividend received
The single hard part is finding the correct impermissible-income percentage. You do not estimate it yourself — the company's own financial statements (or, far more conveniently, your screening provider) publish a purification ratio each year. This is typically expressed as one of two things:
- A percentage (e.g. "3% of dividend income should be purified") — multiply directly, as in Aisha's case.
- A per-share amount (e.g. "purify £0.012 per share held on the dividend record date") — multiply by the number of shares you held, not by the dividend.
| Dividend received | Impermissible % | Amount to purify | You keep |
|---|---|---|---|
| £1,000 | 1% | £10 | £990 |
| £1,000 | 3% | £30 | £970 |
| £1,000 | 5% | £50 | £950 |
| £2,500 | 3% | £75 | £2,425 |
| £5,000 | 2.4% | £120 | £4,880 |
If the impermissible ratio ever crosses the screening threshold (5% under AAOIFI for non-permissible income), the company is no longer compliant and the issue is no longer "how much to purify" but "should I still hold this at all." See our halal stock screening guide for the full ratio tests.
Purification on capital gains vs on dividends — the different views
Dividends are the easy case: scholars broadly agree you purify the impermissible slice of any dividend you receive. Capital gains — the profit when you sell the share for more than you paid — are genuinely contested, and you will find serious scholars on more than one side. The disagreement is worth understanding because it changes how much you give away.
| View | Purify capital gains? | Reasoning |
|---|---|---|
| No purification on gains (e.g. the position associated with many AAOIFI-aligned indices) | No — purify dividends only | The share price reflects the underlying halal business and market sentiment, not the trickle of interest income. The impermissible income was already in the dividend stream, where you purified it. |
| Purify gains too (more cautious view) | Yes — apply the same % to the gain | Retained impermissible earnings can inflate the share price, so a slice of your gain is "tainted." Applying the ratio to the gain removes it. |
| Purify the proportional retained earnings (strictest) | Yes, with a separate per-share figure | Some scholars compute purification on the impermissible retained earnings per share over your full holding period, not just the realised gain. |
For most UK retail investors using a screened ETF or fund, the practical default the provider applies is purify dividends, not capital gains — and that is a defensible majority position. If you want to follow the more cautious route, multiply your realised gain by the same impermissible-income ratio and add it to your purification donation. There is no single "correct" number here; choose a scholarly position you are comfortable with and apply it consistently. If in doubt, ask your fund's Sharia board which method they follow, or a qualified scholar.
The UK tax angle: there is no deduction for purified money
This is where people get confused, so be precise. Purified money is treated, for UK tax, exactly like the rest of your dividend — and you get no special deduction for giving it away as purification.
You still pay dividend tax on the whole dividend
HMRC taxes the dividend you receive. It does not care that 3% of it was theologically not yours. For 2026/27, you get a tax-free Dividend Allowance of £500; dividends above that are taxed at 10.75% (basic rate), 35.75% (higher rate) or 39.35% (additional rate). These rates rose by two percentage points from 6 April 2026 (previously 8.75% and 33.75%). Source: GOV.UK — Tax on dividends.
Aisha, continued. Her £1,000 dividend is part of £2,000 total dividends for the year, and she is a higher-rate taxpayer. After the £500 allowance, £1,500 is taxable at 35.75% = £536.25 dividend tax. The £30 she purifies does not reduce that tax bill at all — HMRC taxed the full dividend, and the £30 leaves her pocket separately. So the true cost of holding this share is the dividend tax plus the purification, and she should think of them as two distinct deductions from the same income.
Can you wrap the purification donation in Gift Aid? Tread carefully.
UK charitable donations to registered charities can normally use Gift Aid: the charity reclaims 25p per £1 from HMRC, and higher/additional-rate taxpayers can reclaim the difference between basic rate and their top rate through Self Assessment (Source: GOV.UK — Gift Aid). On a £30 donation, Gift Aid would let the charity claim ~£7.50, and a 40% taxpayer could personally reclaim ~£7.50 back.
But many scholars argue you should not claim the personal Gift Aid relief on purified money, because clawing tax back to yourself means you have retained part of the impermissible income — the very thing purification is meant to remove. The cautious practice is: let the charity claim its Gift Aid top-up if you wish (that benefits the charity, not you), but do not personally reclaim the higher-rate relief, or if you do reclaim it, add that reclaimed amount to your next purification. There is no UK tax rule forcing this — it is a Sharia consideration layered on top of an ordinary donation. Consult a scholar on the position you adopt.
How to record it
Purification is not a line on your tax return — there is no "purified dividend" box. Keep your own records so you never lose track or double-count:
- A simple spreadsheet: date, holding, dividend received, impermissible %, amount purified, charity, receipt reference.
- Keep the screening provider's annual purification report (the source of the % you used).
- If you do Gift Aid the donation, the donation itself goes in the charitable-giving section of your Self Assessment like any other gift — but flag in your own notes that it was purification, so you remember not to treat the relief as windfall income.
Tools that auto-calculate purification vs doing it by hand
You can absolutely do this with a calculator and your broker's dividend statements. But two consumer apps automate it, which matters once you hold a dozen positions and dividends land on different dates.
| Method | How purification works | Best for |
|---|---|---|
| Zoya | Shows a per-holding "purification" figure inside the app and a portfolio-wide total; uses AAOIFI-style methodology and updates as company reports change. | Stock pickers who want a running total across many holdings. |
| Islamicly | Publishes purification ratios per stock and a portfolio purification calculator; you enter holdings and it computes the amount. | Investors who want a second screening opinion alongside the number. |
| Manual | Take the provider's annual % (or per-share figure) and multiply by your dividend (or shares). One line per holding. | Anyone holding a single screened ETF/fund, where the provider already publishes the ratio. |
Two cautions on the apps. First, they give you a number, not a fatwa — the methodology behind the number reflects a particular scholarly position (usually dividends-only, AAOIFI thresholds), so check it matches the view you follow. Second, the app does not give the money away for you; the donation is still your action. For a single screened ETF most UK investors hold inside an ISA, the manual route is genuinely fine — the fund's factsheet usually states the purification rate, and one multiplication is all you need.
- The formula: purification = impermissible-income % × dividend received. 3% on £1,000 = £30 given away, £970 kept.
- The hard part is the percentage — get it from your fund/screening provider's annual purification report, not by guessing.
- Dividends are purified by consensus; capital gains are contested — the common default is to purify dividends only, but a more cautious view applies the same ratio to realised gains. Pick a scholarly position and stay consistent.
- No UK tax break for purifying. HMRC still taxes the full dividend (£500 allowance, then 10.75%/35.75%/39.35% for 2026/27). Purification is a separate deduction from your pocket.
- Be careful with Gift Aid: the charity's top-up is fine, but personally reclaiming higher-rate relief on purified money arguably defeats the purpose. Record everything yourself; it is not a tax-return line.
- Tools (Zoya, Islamicly) automate the maths and are great for multi-holding portfolios; for one screened ETF, doing it by hand is simple and correct.
Frequently asked questions
What is the dividend purification formula?
Purification = the company's impermissible-income percentage × the dividend you received. For example, 3% impermissible income on a £1,000 dividend means you give £30 to charity and keep £970. The percentage comes from the company's accounts or your screening provider's annual purification report.
How much of a £1,000 dividend do I give away?
It depends on the impermissible-income ratio for that company that year. At 1% you purify £10, at 3% you purify £30, at 5% you purify £50. You multiply the dividend by the ratio your fund or screening provider publishes — you do not estimate it yourself.
Do I purify capital gains as well as dividends?
Scholars differ. The common position used by many AAOIFI-aligned providers is to purify dividends only, on the basis that impermissible income flows through the dividend stream. A more cautious view applies the same impermissible-income ratio to your realised capital gain too. There is no single agreed answer — choose a scholarly position you are comfortable with and apply it consistently.
Can I claim a UK tax deduction for the money I purify?
No special deduction exists. HMRC taxes the whole dividend regardless of purification (after the £500 Dividend Allowance for 2026/27, at 10.75%, 35.75% or 39.35% depending on your band). The purified amount is an ordinary donation. You can use Gift Aid like any other gift, but many scholars say you should not personally reclaim the higher-rate Gift Aid relief on purified money, because keeping that relief means retaining part of the impermissible income.
How do I record purification for my own tax and Sharia records?
Purification is not a box on your Self Assessment return. Keep a personal spreadsheet — date, holding, dividend received, impermissible %, amount purified, charity and receipt. Save the provider's annual purification report. If you Gift Aid the donation, it goes in the normal charitable-giving section, but note in your own records that it was purification so you do not treat any reclaimed relief as windfall income.
Should I use an app like Zoya or Islamicly, or do it manually?
For a portfolio of many individual stocks, apps like Zoya and Islamicly are worth it — they compute a running purification total and update as company reports change. For a single screened ETF or fund held in an ISA, the manual route is fine: the fund factsheet usually states the purification rate, and one multiplication gives your answer. Either way, check the methodology matches the scholarly view you follow, and remember the app does not donate the money for you.
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