How big would your ISA need to be to earn £100,000 a year in passive income?

Most people in the UK don’t earn £100k a year in wages, so to generate that much in tax-free passive income in an ISA might sound like pie in the sky. The sort of reverie one might have on the way to work on a grey, wet morning (we’ve had lots of those recently).

But is it a pipe dream? Here, I want to look at the numbers to see how realistic this is inside a Stocks and Shares ISA.

Trailblazers

Since 2017, the ISA allowance has stood at £20k a year. By maxing this out every year, and the allowances before that, some investors have managed to build seven-figure portfolios.

Indeed, industry data shows there are over 5,000 ISA millionaires, with some portfolios topping £10m!

Naturally, the majority of these investors are older, as it takes time to build that sort of pot. Moreover, people generally don’t start thinking about investing money — rather than simply spending it — until the grey hairs start emerging.

But these trailblazers show what’s possible over the long run. A £1.43m ISA portfolio that yields 7% would throw off roughly £100k in passive income every year (excluding brokerage fees).

In other words, dividend stocks held would pay that much in dribs and drabs throughout the year.

Aiming for £1.43m

Assuming someone can afford to invest half the ISA allowance — £833 a month — it would take roughly 28 years to reach £1.43m. This assumes a 10% average return and that all dividends are reinvested along the way to fuel compounding.

If this investor were able to invest more over time as their career progressed — averaging £15,000 every year, say — this target could be reached in less than 24 years. Generate a 12% return, and the time frame comes down again, to around 21 years.

Of course, stock market returns and dividend yields are never nailed on. So it would be important to build a diversified portfolio to minimise risk, as well as do research before buying shares.

The Motley Fool has plenty of resources for investors just getting started.

A UK starter stock to consider

Investing platform AJ Bell put out interesting data last year about ISA millionaires. It said the top five holdings owned among this group of customers were Shell, Lloyds, Aviva (LSE:AV.), GSK, and BP.

These are all FTSE 100 blue chips that pay dividends. Zooming in on Aviva, this is one I also hold in my portfolio. It’s the UK’s largest home and motor insurance group after its acquisition of Direct Line.

The stock has done really well recently, returning around 43% in the past two years, before dividends.

There are a few reasons why I think Aviva could be worth considering as a starter stock. For one, it’s a trusted brand, with four in 10 UK adults having a policy with the group.

As such, it’s very profitable, with operating earnings per share tipped to grow 11% between 2025 and 2028. It also pays a nice dividend, with the forecast yield at 6.7% (more than double the FTSE 100 average).

Bear in mind, though, that the insurance market is competitive and could see pressure during a recession. But as part of a nice mix of stocks, I rate Aviva moving forward, especially its income growth potential.