How much do you need in a Stocks and Shares ISA for £2,015 passive income a month?
A Stocks and Shares ISA can be a powerful tool for generating tax-free income, but how large a pot is needed to earn £2,015 a month depends on your expected returns. That target equals £24,180 a year.
Assuming a 4% annual yield from dividends and interest, you would need roughly £604,500 invested (£24,180 ÷ 0.04). At a 5% yield, the required sum drops to about £483,600, while a 6% yield reduces it further to around £403,000.
However, it’s important to remember that higher yields often carry more risk and less predictable income. Balancing yield with safety and growth is key to preserving your capital while meeting your monthly income goal.
The reality of the yield is a reflection on market conditions. Five percent would have been an easily achieve yield to lock in a couple of years ago. It’s a little harder today and may involve looking outside the blue-chip indexes.
The beauty of doing this within in a Stocks and Shares ISA is that the dividends and gains generated are free from income tax and capital gains tax, helping passive income go further.
Build the portfolio
Of course, building a portfolio worth somewhere in the region of half a million pounds isnât easy. But it’s achievable with a strategy built around consistent contributions, the power of compounding, and sensible long-term investments.
In simple terms, if an investor contributed £700 a month into a Stocks & Shares ISA and achieved 10% annual growth â slightly above the long-term average return for UK ISA investors â the portfolio would reach roughly £500,000 in around 19 years.
That outcome doesnât rely on perfect market timing or speculative bets. It assumes steady investing through market cycles, reinvesting dividends, and maintaining discipline during downturns.
Importantly, the tax-free nature of an ISA means all growth and income compound without being eroded by income tax or capital gains tax.
While returns will vary year to year, the example highlights how time, regular saving, and a growth-focused approach can turn manageable monthly contributions into a substantial passive income asset over the long term.
Where to invest?
Like most of my Foolish colleagues, I believe the best way to build wealth over the long run is buying well-researched individual shares. One stock that stands out for consideration to me is British banking minnow Arbuthnot (LSE:ARBB).
So why does it stand out? Well, it comes down to relative valuation. It’s cheaper than its blue-chip peers trading around 8.1 times forward earnings and with a dividend yield around 6.1% with plenty of coverage.
On a price-to-book basis, the valuation gap looks even more striking. Arbuthnot trades at just 0.53 times book value, compared with ratios comfortably above one for the major UK banks.
That suggests the market’s heavily discounting its smaller size rather than its underlying fundamentals. Profitability also stacks up reasonably well, with earnings expected to grow by around 19% in 2026, supporting both dividend sustainability and future income growth.
The main risk, of course, is scale. As a smaller lender, Arbuthnotâs shares can be illiquid, and earnings could prove more volatile in an economic downturn. But for investors prepared to accept that trade-off, the valuation looks appealing.
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James Fox has positions in Arbuthnot Banking Group Plc. 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.
