How big does an ISA need to be to target a £10,000 monthly second income?

Using an ISA to earn a second income is a terrific way to get more money in the bank without having to work for it… or pay any taxes. And with the UK stock market home to hundreds of dividend-paying companies, investors aren’t exactly short on income-generating opportunities.

In fact, given enough time, a well-constructed dividend portfolio could even generate upwards of £10,000 a month. That’s a £120,000 annual ISA income, entirely tax-free.

Sounds too good to be true? Here’s how to do it.

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.

Unlocking a £10,000 monthly second income

On average, dividend-paying UK shares offer yields close to 4%. But by being more selective, an investor can realistically target a 6% payout without taking on too much additional risk.

At this level of payout, an ISA would need to be worth around £2m to generate a £120,000 annual second income. That’s obviously quite an ambitious target. But it’s worth pointing out that there are already over 5,000 ISA millionaires in the UK, with nearly 60,000 investors at least halfway to their first million.

That’s proof that with the right strategy and enough time, even a new ISA today can eventually reach seven-figure territory. And crunching the numbers also comes to the same conclusion.

If a new ISA achieves a 10% average annualised return over the long run, the journey to £2m could be completed in as little as 24 years.

Earning 6% yields

Building a £2m Stocks and Shares ISA is only the first part of the journey. Once an investor’s built their chunky nest egg, the focus now switches from growth to income. The question now becomes which stocks investors should buy for a reliable 6% dividend yield?

By 2050, the UK stock market will look very different from today. But the lessons for finding top-notch income stocks are likely to remain the same. Investors need to search for a business that generates ample cash flow, benefiting from structural long-term demand.

Looking at the companies that may fit this profile in 2026, LondonMetric Property (LSE:LMP) stands out as an interesting contender with a 6.3% yield on offer.

The real estate investment trust (REIT) owns and manages a diversified portfolio of commercial properties leased out to large-scale companies. This includes warehouses, logistic hubs, retail stores, hotels, private hospitals, and even a few theme parks.

By targeting businesses with robust financials, and specialising in triple net leases where tenants are responsible for all maintenance and property taxes, the company generates an impressive and reliably predictable cash flow each month, that’s enabled a decade of continuous dividend hikes.

Is it a risk-free investment? Of course not. Building out a real estate portfolio, either through construction or acquisition, requires a lot of upfront capital, which LondonMetric has historically relied on debt to fund. As such, the balance sheet’s quite leveraged, making the business even more sensitive to fluctuations in interest rates.

But with a solid track record of financial stewardship, investors seeking to build a chunky second income might want to consider taking a closer look at this FTSE 100 enterprise.

The post How big does an ISA need to be to target a £10,000 monthly second income? appeared first on The Motley Fool UK.

More reading

• 1 REIT I own for a lifetime of passive income!
• 3 top passive income stocks with yields above 5% to consider for a SIPP
• How much do I need in a Stocks and Shares ISA to earn a £100 monthly income?
• How much do you need in an ISA to generate a second income of £2,700 a month in 2050?
• Owning 2,844 shares of this FTSE 100 firm could pay £351 in annual second income

Zaven Boyrazian has positions in LondonMetric Property Plc. The Motley Fool UK has recommended LondonMetric Property Plc. 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.

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