How much do you need in a Stocks & Shares ISA to target a £50,000 passive income?
For many investors, the ultimate goal isnât just growing wealth, but reaching a point where their portfolio generates reliable, tax-efficient income. A Stocks and Shares ISA can be a powerful vehicle for achieving this. But how large would that ISA need to be in order to deliver £50,000 a year in passive income?
Well, the answer really depends on the type of shares held and the yield they provide. The dividend yield is simply the annual dividend per share expressed as a percentage of the share price. For instance, if a portfolio averages a 4% yield, an investor would need around £1.25m inside an ISA to hit that £50,000 target. But with a higher-yielding portfolio averaging closer to 6%, the required sum falls to about £830,000.
It shouldnât be too daunting
At first glance, needing hundreds of thousands of pounds â or even more than £1m â inside an ISA might sound daunting. But the power of compounding shows that itâs more achievable than it first appears.
For example, an investor who contributes £500 each month and achieves an average annual return of 8% could end up with around £1m after 33.5 years. Thatâs without any lump-sum starting point. Itâs just about steady investing and letting the returns roll up tax-free inside an ISA.
The process is simple. Setting up a Stocks and Shares ISA can be done in minutes through all major UK brokers. Contributions can be automated, ensuring consistency. From there, the key is to build a diversified portfolio, avoiding over concentration. The tax benefits mean dividends and capital gains can be reinvested without the drag of HMRC taking a cut.
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.
Of course, itâs not guaranteed. Stock markets donât move in straight lines, and 8% annualised returns arenât promised. Inflation, market crashes, and poor stock selection can all reduce outcomes. But with patience, discipline, and a long-term mindset, the ISA remains one of the best vehicles to build life-changing wealth.
Investing consistently
My preference is to invest in one or two stocks a month. Some months Iâm investing less because the market looks hot. Some months Iâm investing more because there appears to be more opportunity.
One company that I believe is worth considering is UK-listed minnow Synectics (LSE:SNX). The stock has enjoyed a strong run over the past year, yet the shares still look attractively priced.
The AIM-listed surveillance specialist trades on just 12.2 times forecast earnings for 2025, falling to under 10 by 2027, while analysts see dividend yields rising to 3.3%. A net cash balance of £12.1m against a £53m market-cap underscores its financial strength.
The latest half-year results showed 35% revenue growth and a 59% jump in adjusted EPS, driven by contracts with West Midlands Police, Stagecoach, and overseas clients. Expansion into new markets such as the Philippines and UAE highlights its global ambitions.
Investors should look at the spread between the buy and sell price as well as the apparent reliance on a handful of larger contracts. However, with strong momentum, a pristine balance sheet and undemanding valuation, Synectics is worth considering.
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James Fox has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
