£20,000 in an ISA? Here’s how that could become £12,300 a year in passive income

The FTSE 100 may have jumped above the symbolic 10,000 mark in 2026, but that doesn’t mean passive income opportunities are dead in the water.

In fact, if we zoom out to take in the whole of the London Stock Exchange, the income potential is enormous. For proof, just look at the FTSE 250. By my count, it has over 30 stocks offering dividend yields above 6%.

I’m not saying all of them are income slam-dunkers — dividends are never guranteed, after all — but it does show the scale of the opportunity.

Here, I’ll outline how it’s possible to aim for substantial passive income from Â£20,000 inside a Stocks and Shares ISA.

Why an ISA?

For beginners, it’s crucial to start off in the right investment account. And for most people in the UK, this is usually going to be the Stocks and Shares ISA.

This amazing vehicle shields any returns (including income) from the taxman. With the contribution limit currently set at a generous Â£20,000 per year, this can enable the steady accumulation of wealth.

You see, when 100% of returns are kept in the account free from tax, this money has the chance to earn more money. In other words, the Stocks and Shares ISA is the perfect place to let compounding work its magic over time.

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.

Taking the long-term approach

Using the 6% dividend yield mentioned above as a benchmark, this means a Â£20k portfolio of stocks would throw off Â£1,200 a year in dividends. While that’s a handy sum of money, it’s hardly what you would call substantial.

To achieve this, time and patience are needed. For example, if this 6% yield were reinvested instead of spent, and the portfolio increased in value by 3% per year on average, the Â£20k ISA would grow to roughly Â£205k after 27 years.

A 6% yield then would equal Â£12,300 in annual passive income!

Note, these figures don’t include fees, and assume no extra money is added. Obviously, if further regular sums were invested along the way, these figures would likely be significantly higher (assuming similar rates of return).

A high-yield UK stock

Looking at FTSE 250 stocks yielding 6% or more, TBC Bank Group (LSE:TBCG) stands out to me for a few reasons.

First, this is a leading banking group in Georgia, which is one of the fastest-growing economies in the Eurasia region. This has driven robust profitable growth at TBC, which also operates the leading digital bank in Uzbekistan (another fast-growing economy).

The stock currently trades at a discount to Georgian banking peer Lion Finance (another FTSE 250 share). TBC’s earnings multiple is just 5.7 versus 6.9 for Lion Finance.

And despite the share price rising 190% in five years, TBC still sports an attractive forward dividend yield of 6.9%. What’s more, this forecast payout is covered nearly three times over by expected earnings, suggesting the dividend is sustainable.

Now, the obvious risk here is Georgia’s economy. If that went south, earnings growth could disappoint, sending the stock down in a heartbeat. There’s also ongoing political unrest in Georgia following 2024’s contested election result.

Nevertheless, international institutions still expect the economy to grow 5%-6% in 2026. Combine this strong growth with the cheap valuation and high-yield dividend, and I think TBC is worth assessing closely.

The post Â£20,000 in an ISA? Here’s how that could become Â£12,300 a year in passive income appeared first on The Motley Fool UK.

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Ben McPoland 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.