With tax rates on dividends going up again in April, the Stocks and Shares ISA has never been more important. It gives everyday investors a real chance of building an attractive future passive income stream — one that remains tax-free.
Of course, what’s considered attractive depends on each person’s situation and lifestyle needs. But with median annual full-time pay in the UK at just over £39,000 in April 2025, I think £64,000 each year in tax-free dividends would count as attractive, even a couple decades down the line.
That would average out at approximately £5,333 every month. So, how large would an ISA have to be to generate that?
Lots of options
Before answering that, I think it’s important to quickly mention that individual dividends can be cut. Therefore, the benefits of diversification cannot be overstated, as a diversified ISA can help minimise the impact of this risk.
While there’s no hard and fast rule, most income investors would only feel comfortable having 10-15 different stocks in their portfolio.
By my count, there are 32 separate stocks and investment trusts across the FTSE 100 and FTSE 250 currently offering a dividend yield above 7%. So it’s perfectly possible to build a high-quality dividend portfolio that yields 6.5%.
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. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
A cheap UK dividend stock
One FTSE 250 dividend stock that I think looks good value right now is Domino’s Pizza Group (LSE:DOM). This is the company that has the master franchise rights for the Domino’s brand in the UK and Ireland.
Now, we know it’s a really bad time for UK retailers right now. Consumer spending continues to be very weak, while labour costs have also been rising. As such, confidence among retailers is at a multi-year low.
Unfortunately, the FTSE 250 pizza firm has not managed to escape this backdrop, with sales under pressure. For 2025, it expects underlying EBITDA in the range of £130m to £140m, down from £144m in 2024.
Moreover, CEO Andrew Rennie has stepped down, adding to the uncertainty. Add all this together, and we have a stock that’s down 45% year to date and languishing at an 11-year low.
For me though, the selling looks to have gone a bit too far here. Granted, sales are sluggish, but the pizza chain is still securing market share in online delivery and has improved customer loyalty.
To expand beyond pizza, it recently launched the Chick ‘N’ Dip brand, which has apparently gone down well with customers. And it’s still potentially interested in acquiring a second brand to boost sales.
After the stock’s fall, the forward price-to-earnings ratio is down to just 9.4, which is close to a historic low on this key metric.
Plus, the dividend yield is now 6.4%, making this a potentially interesting high-yield dividend stock to consider for an ISA portfolio.
Back to passive income
Putting this together then, an ISA would need around £985k in it to generate the equivalent of £5,333 every month.
Starting with £5,000, it would take someone just over 26 years to reach that amount by investing £850 each month. This assumes an average 8% annual return and that all dividends are reinvested in this time.
Fortunately, there are tonnes of passive income stocks across the London Stock Exchange, and Domino’s Pizza is just one opportunity.
