The Stocks and Shares ISA can be a great investment vehicle for generating passive income. With access to dividend stocks and income funds, and no tax payable on gains or distributions, the cash flow possibilities are (almost) endless.
But how much capital would you need in this type of ISA to generate £2,000 a month (£24,000 a year) in passive income? Let’s crunch the numbers.
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Building an income portfolio in an ISA
There are lots of very high-yielding stocks on the London Stock Exchange. Currently, I’m talking dividend yields of 10% and higher.
Investors have to be careful with these kinds of stocks however. In the investment world there are no free lunches, so the higher the yield, the higher the risk (these include loss of capital and/or lower-than-expected dividend income).
I think investors could build a diversified portfolio (15+ stocks) with an average yield of about 6%-7% today without taking on too much risk. They could do this by combining high yielders like Legal & General Group (8.4% forecast dividend yield for 2026) and Phoenix Group (7.7%) with lower-yielding dividend stocks that are more defensive/secure in nature such as Unilever (3.8%) and National Grid (4.2%).
If the investor was able to achieve an average dividend yield of 6%, they’d need about £400,000 in their ISA to generate income of £2,000 a month. If they were able to pick up a 7% yield on average, they’d require capital of about £343,000.
A high-yield dividend stock to consider buying today
One high-yielder that I believe is worth a look today is Primary Health Properties (LSE: PHP). This is a FTSE 250 real estate investment trust (REIT) that’s focused on healthcare properties (GP surgeries etc) in the UK and Ireland.
This stock has a great track record when it comes to paying dividends (REITs can be excellent income investments as they are required to pay out 90% of their profits to shareholders as dividends). And currently, the yield’s a very attractive 7.2% (looking at the 2026 dividend forecast).
Looking beyond the bumper yield here, there are several things I like about this stock. One is that demographics (the UK’s ageing population) should provide a supportive long-term backdrop – demand for healthcare’s likely to rise in the decade ahead.
Another is that a large proportion of its properties are rented by the NHS. So its revenues are government backed.
A third attraction is that healthcare is a defensive industry. No matter what’s happening in the company, people get sick and go and see their doctors.
Of course, there are risks to consider with this dividend stock. One is UK interest rates – if these stay high, REITs like this could come under pressure.
In the long run, artificial intelligence (AI) could also potentially be a threat. This could significantly reduce the volume of unnecessary doctor appointments.
I see appeal in this stock as we start 2026 however. In my view, it’s worth considering for an income portfolio.
