A Stocks and Shares ISA is an incredible vehicle for building wealth and taking a passive income. Why? Well, it’s entirely shielded from tax. Once you’ve put the money in there, there’s no capital gains tax and no tax on the dividends. This means it can grow unimpeded with income maximised.
Now, a passive income of £1,000 a month sounds like something reserved for lottery winners or early retirees with trust funds. But for UK investors using a Stocks & Shares ISA, it’s a far more grounded ambition than many realise.
The big question shouldn’t be whether it’s possible — but how much capital is actually required.
The answer depends on assumptions around dividend yield, portfolio construction, and risk tolerance. Aim too low, and the target becomes unrealistic. Aim too high, and investors may be tempted into unsustainable income strategies.
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.
Building the portfolio
A common starting point is a 4% income yield, often used in retirement planning as a sustainable long-term withdrawal rate. At 4%, generating £12,000 a year would require a portfolio of around £300,000
That’s no small sum. But it also isn’t fantasy. Someone investing the full £20,000 ISA allowance for 15 years, earning a 6%-7% annual return, could plausibly reach that level — especially with dividends reinvested along the way.
Higher yield, higher risk? Of course, many income investors aim higher than 4%. At a 5% yield, the required ISA pot drops to £240,000. At 6%, it falls further to £200,000.
So how can an investor build a portfolio worth £200,000-£300,000? Well, unless you’ve got that money to hand, it’s going to take time. Here’s a brief illustration as to how £500 monthly contributions could compound at 10% annualised growth.
Investing for growth
Most of us, including myself, are in the ‘investing-for-growth’ phase. At least that’s what the data tells us.
So where to invest? Well, I remain bullish on Jet2 (LSE:JET2) despite the stock moving in the wrong direction recently. The company is undoubtedly the cheapest airline I’ve come across and that’s surprising because it has great operational momentum.
When adjusted for the company’s large net cash position, we can see that Jet2’s trading around 4.2 times forward earnings. That’s roughly half the average of its peers.
Earnings will likely remain flat this year, but that reflects an investment in its new operating hub at Gatwick. From 2027 onwards, when those costs have been absorbed, earnings should improve markedly.
I’m also wondering if payouts from the motor finance scandal looking for a holiday may provide a little extra boost for Jet2 and its peers in 2026. That would certainly lift the stock if true.
On the risk front, we need to keep an eye on fuel costs. Trump’s pressure on Iran and Venezuela pushed fuel prices up. While airlines hedge fuel, the rise contributed to the stock moving lower.
However, I see this company as a long-term winner. Revenue’s moving in the right direction, the balance sheet’s rock solid, and the fleet overhaul should bring efficiency benefits. I certainly think it’s worth considering.
