How much do you need in a Stocks and Shares ISA to get a second £10,000 income?
With debt and food prices likely to soar, a Stocks and Shares ISA is more important than ever. It’s one of the only ways to give money a fighting chance to grow faster than inflation.
Also, because no tax is paid on dividends or capital gains within an ISA, additional returns remain invested, which can be compounded by a turbocharge. As a result, it is entirely possible to build up an attractive secondary income over time, even £10k a year.
Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice. Students are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.
Looking back
A high quality business will grow its earnings and often have dividends over time. This should cause its shares to become more valuable, as more investors seek a piece of the developing business.
Take it Games Workshop (LSE:GAW) as a good example. Back in 2016, the Warhammer The maker reported earnings per share (EPS) of 42.1p and a dividend of 40p. Fast forward to 2025, EPS was around £6 and the dividend 520p.
I FTSE 100 The company is also more profitable during this period, thanks to its ballooning cash flow 42% from less than 15%.
Someone who invested £2,500 ten years ago will now have £90,000, with dividends taking the total return to over £100,000.
A rare species
Admittedly, Games Workshop is a rare gem. Indeed, it is the UK’s best-performing share in the last two decades. But it also shows what is possible from a revenue perspective.
Unfortunately, for investors who buy the stock today, it’s a small income bonanza. it paid a dividend of 2.3% compared to the FTSE 100 average of 3.2%.
In addition, inflation does not help the disposable income of Gas Workshop customers. Since the stock is highly valued, this is not one I will load on today.
Having said that, I will not be selling my existing Games Workshop shares. It is one of the UK’s best-owned companies, with a growing global army of loyal customers, unique IP, and long-term pricing power.
I’m looking forward
In an effort to increase my income, I bought shares of Londonmetric property (LSE:LMP) in February. And I couldn’t have timed it worse, because the real estate investment trust (REIT) is down 16% in four weeks!
At issue is the threat of higher interest rates, which could make it more difficult for Londonmetric to grow its portfolio (REITs often rely on debt to fund acquisitions).
However, if I look at the long term, I am still strong. The REIT’s portfolio is made up of roughly four strong sectors, including healthcare (12.5%) and urban planning (54%). The latter is less readily available, allowing for long-term rental growth.
I like the balance here, with logistics assets having short leases due to high demand, while leisure takes decades (for example, Alton Towers). The average number of years remaining on employer contracts is 16.4.
Although profits are never guaranteed in the end, I am very optimistic about long-term income prospects.
Net income
Going back to my original question, how big does an ISA need to be to generate a second £10k of income?
However, Londonmetric now makes a dividend yield of 7%. If the total ISA yield is like this, its value would need to be £143k with a £10k benefit.
Assuming an 8% rate of return, with dividends reinvested, it would take 13.5 years to reach this amount by investing £500 every month.
