I’m using a Stocks and Shares ISA to boost my passive income

This Fool wants to take advantage of the tax benefits a Stocks and Shares ISA provides as he invests for retirement. Here’s why.

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The end of the tax year is fast approaching, and March is the last full month for investors to make the most of their Stocks and Shares ISA.

I want to use mine to enhance my passive income streams. With my ISA, I get a £20,000 a year deposit limit. When I withdraw my funds, I don’t have to pay a penny in tax. It’s an excellent way for me to maximise how much money I can make.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

I want to build up my nest egg over the long run. Therefore, I’m largely targeting blue-chip companies with proven business models. One I already own, but am eager to keep buying, is Legal & General (LSE: LGEN).

All on track

The stock hasn’t been the best performer lately. In the last 12 months, it’s down by 8.7%. That said, at 242.8p, I think its shares could be a bargain.

Yesterday (6 March) the firm announced its full-year results for 2023. What I first looked for in the release was an update on its five-year cumulative dividend plan that’s set to end this year.

As part of this, the firm aims to return between £5.6bn and £5.9bn to shareholders. I was happy to see that it’s on track to achieve this. On top of that, for the year, Legal & General intends to grow its dividend by 5%, something it has done since 2021.

Dividends are never guaranteed. So, it’s such progressive actions I want to see in the companies I buy. It yields an impressive 8.1%, considerably higher than the FTSE 100 average. I also think the stock looks like good value for money, trading on a forward price-to-earnings ratio of just over nine.

The Legal & General share price may continue to struggle in the months to come. For 2023, profit after tax fell to £457m from £783m in 2022. It also said higher UK interest rates weakened asset valuations.

It seems likely that the Bank of England won’t start cutting rates until the fourth quarter, so this could have a detrimental impact on the stock.

However, I’m fine with short-term volatility. That’s especially because I think the business is well-positioned to surge in the long run as it benefits from trends such as an ageing population.

A more comfortable retirement

But how much could I make investing in my ISA?

Let’s say I have an initial lump sum of £5,000 to invest. I’d then look to drip-feed an additional £200 a month, as I know there are a host of benefits attached to investing regularly.

I’m investing for my retirement. At an 8% return, after 30 years, my pot would be worth £352,750. If I then applied the 4% drawdown rule, I’d have £14,110 a year in passive income.

I could use that to complement my State Pension. Or I could simply use it to enhance my lifestyle. Either way, I want to start investing now and make the most of the benefits I receive from my Stocks and Shares ISA. It’s companies such as Legal & General that will help me get there.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Charlie Keough has positions in Legal & General Group Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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