Looking to earn a large and growing second income? A Stocks and Shares ISA could be the ‘cheat code’ that turns the dream of a healthy dividend income into reality.
Dividend taxes have been steadily increasing in the UK. They’re set to rise further from April 2026 for basic- and higher-rate taxpayers, too, meaning it’s more important than ever for most of us to protect ourselves from HMRC.
With a £20,000 ISA, every single penny that drops down in dividends is the investor’s to keep. Want to know how to target an annual passive income of £1,500 a year with one?
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.
Targeting a second income
A £1.5k second income from a £20k ISA would require a 7.5% dividend yield. Rallying share prices have reduced the number of dividend stocks offering yields at this level. But there are still plenty for UK investors to choose from today.
My research puts the number of income shares with yields of 7.5% or above at roughly 100. It’s possible a lot of these won’t deliver the dividends analysts are tipping. However, with some careful research, investors can separate the wheat from the chaff and make dependable income streams.
Iinvestors can give themselves an added layer of protection by building a diversified shares portfolio. This can ensure a steady flow of income even if individual companies experience operational issues that affect payouts.
Seven of the best
Here’s a mini portfolio of seven stocks with an average forward dividend yield of 7.5%. As I say, dividends are never guaranteed, but I think this selection could deliver a strong second income in 2026 and beyond:
- Legal & General – 8.5% yield
- Supermarket Income REIT – 7.4% yield
- US Solar Fund – 7.8% yield
- TBC Bank – 6.1% yield
- Admiral – 7.5% yield
- Taylor Wimpey – 8.4% yield
- iShares UK Property ETF (LSE:IUKP) – 4.3% yield
This dividend portfolio spans a multiple industries and regions, helping investors to manage risk. The trump card from a diversification perspective is the iShares UK Property ETF. It might be the lowest yielder among this group, but it’s a true passive income powerhouse.
In total, this iShares product holds shares in 31 real estate investment trusts (REITs). These span different segments of the property market like offices, data centres, warehouses, shopping centres, and residential property. As such, the fund can deliver a steady income across the economic cycle.
On top of this, this exchange-traded fund’s (ETF) focus on REITs provides an added bonus. Under the rules of these trusts, at least 90% of annual rental profits need to be paid out in dividends. By imposing a minimum threshold, regulators limit the amount of discretion the company has over what it chooses to pay, providing added dividend visibility for investors.
Of course dividends can still underwhelm if occupancy and rent collection issues spring up that hurt earnings. But with large tenant bases and clients tied into multi-year contracts, these risks are greatly reduced (if not quite eliminated). I think a portfolio comprising these seven dividend stocks could deliver a robust second income over time.
