A Stocks and Shares ISA is one of the most powerful tools available to long-term savers. Capital growth rolls up free of tax inside the wrapper, and when the time comes to draw an income, that’s tax-free too. For life.
After years of watching income tax nibble away at monthly pay, the idea of earning £50,000 a year and keeping every penny feels almost subversive. With thresholds frozen and more workers dragged into higher bands, sheltering investments inside an ISA looks increasingly valuable.
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.
FTSE 100 dividends for life
For me, the simplest route to building that future income is a diversified spread of dividend-paying FTSE 100 shares. Dividends are the cash payments companies distribute to shareholders. Many aim to lift them steadily over time, helping protect spending power against inflation.
Let’s set an ambitious target. Suppose an investor aimed to generate £50,000 a year in passive income by 2050. That’s a serious sum. So how big does the ISA need to be?
One widely used yardstick is the 4% rule. The idea is that withdrawing 4% of a portfolio each year should, in theory, preserve the underlying capital over the long term. Apply that to a £50k income goal and the required pot comes to £1.25m.
Yes, that number looks daunting. I’m nowhere near it myself. The encouraging part is that 2050 is still 24 years away.
Few people start from zero. Imagine an investor already has £100,000 spread across pensions and ISAs. Now let’s say they contribute the full £20,000 allowed to an ISA each year. Then achieve an average annual return of 7% with dividends reinvested. After 24 years, they’d sweep past the target with £1.75m. Using the 4% rule, they’d get a second income of £70,000 a year.
Most of us can’t afford to invest that much, but my illustration shows what consistent saving and compounding can achieve. Even falling short of the £50,000 target would still leave someone far better prepared for retirement than doing nothing at all.
HSBC shares are soaring
As for stock selection, one that stands out as worth considering today is HSBC Holdings (LSE: HSBA). The FTSE 100 banking giant has delivered a stunning 53% share price gain over one year and 225% over five years. The pace is likely to slow from here, but with a long-term view I think it should still deliver plenty of growth and income.
The trailing yield has slipped below 4% as the share price has climbed, yet it already beats most cash accounts and better still, should rise steadily over time. On Wednesday (25 February), HSBC’s annual results beat expectations. Pre-tax profit for 2025 fell 7.4% to $29.9bn, but that was mostly due to one-off factors. The underlying performance was solid.
There are clear risks. Falling interest rates could squeeze net interest margins, the gap between what banks pay savers and charge borrowers. A slowing Chinese economy and geopolitical tensions add further uncertainty, given HSBC’s deep exposure to Asia.
Even so, as part of a balanced portfolio of a dozen or so shares, I see HSBC as a compelling building block for long-term income. The ISA deadline is looming fast. So is 2050. No time to lose.
