Savings rates wobble, dividends swing, and household budgets feel the squeeze. Many readers ask where regular ISA income begins today.
Here’s a clear, numbers-first guide to the ISA pot size that could aim at £1,300 a month in passive income, plus realistic timelines and risks that matter right now.
The target in numbers
£1,300 a month is £15,600 a year. The core maths is simple: required pot = required annual income ÷ dividend yield.
Target income £15,600 a year. At 3% yield you’d need about £520,000. At 5% it’s £312,000. At 7% it’s ~£223,000.
| Yield | Annual income target | Indicative pot needed |
|---|---|---|
| 3% | £15,600 | £520,000 |
| 4% | £15,600 | £390,000 |
| 5% | £15,600 | £312,000 |
| 6% | £15,600 | £260,000 |
| 7% | £15,600 | £222,857 |
Yields move. Company payouts rise and fall with profits and cash flow. The FTSE 100’s overall yield usually sits near the mid‑single digits, though single stocks can offer more. A higher yield shortens the journey, but often adds risk.
What the ISA actually does for you
The ISA ring‑fences your holdings from UK dividend and capital gains taxes. That helps an income strategy, because every pound of dividend stays yours. The standard adult ISA allowance remains £20,000 for the current tax year. You can split that across cash, stocks and shares, or other ISA types, subject to the rules.
Tax rules can change. Personal circumstances differ. Seek regulated advice if you are unsure.
Contribution limits and timelines
Most people won’t drop £312,000 in one go. Many build the pot through the ISA allowance each year and reinvest their dividends until the income target looks reachable.
- Assumption A: you invest £20,000 at the end of each tax year.
- Assumption B: your portfolio compounds at 5% a year during the saving phase.
- Target pot for a 5% yield: roughly £312,000.
Under those assumptions, it takes about 12 years to grow a pot large enough that a 5% yield could pay £1,300 a month. Push the assumed growth rate to 6% and the timeframe shortens. Go lower and the journey lengthens. The saving rhythm matters just as much as the headline yield.
Where the income could come from
UK large caps send billions to shareholders each year. Many household names pay dividends quarterly or twice yearly. An investor can build a diversified basket across sectors such as energy, banks, consumer staples, healthcare, utilities and telecoms. That spreads cash‑flow risk.
What a “workable” yield looks like
Plenty of blue‑chip shares currently yield 5–7%. That sits above the FTSE 100 average, yet still within a zone that often points to sustainable dividends. Double‑digit yields exist, but they can flag stress. Balance sheet strain, falling earnings, or a one‑off windfall can inflate the percentage and tempt income hunters into a cut.
Aim for quality first: resilient cash flow, sensible payout ratios, robust balance sheets and a decade‑long dividend culture.
A practical path for readers
- Set the income target in pounds per year. Here, £15,600.
- Choose a conservative planning yield. Many use 4–5% for the “pot size” maths.
- Calculate the pot. At 5%, think £312,000. At 4%, think £390,000.
- Map your ISA contributions. Can you fund £20,000 a year? If not, what can you add monthly?
- Reinvest dividends during the build phase. Compounding lifts the pot without extra cash from you.
- Diversify across sectors and geographies. Avoid relying on a single payer or single industry cycle.
- Review once or twice a year. Check dividend cover, debt, and payout policies. Replace weak links.
Timelines, modelled
These simple scenarios show how long a saver might take to reach the 5%‑yield pot, assuming contributions at each year‑end and reinvestment.
| Yearly ISA contribution | Assumed growth during build | Years to ~£312,000 |
|---|---|---|
| £20,000 | 5% | ~12 years |
| £20,000 | 6% | ~11 years |
| £15,000 | 5% | ~15 years |
| £10,000 | 5% | ~20 years |
You can compress that timeline by using monthly contributions, raising savings in high‑bonus years, or recycling pay rises into the ISA. A rough monthly target for £20,000 is about £1,667, though many savers vary payments through the tax year.
Risks to watch before you pull the trigger
Dividend reliability
No dividend is guaranteed. Boards cut payouts when profits fall, debt piles up, or cash needs spike. Diversification helps. So does a focus on firms with strong free cash flow and moderate payout ratios.
Yield traps and inflation
Very high yields can hide nasty surprises. Read the balance sheet, not just the percentage. Inflation erodes buying power, so that £1,300 a month should rise over time. A rising‑dividend approach can offset that, but only if earnings grow.
Sequence and valuation risk
Buying at stretched valuations can drag future returns. A bear market early in your plan can delay your target date. Drip‑feeding across the year smooths entry points and lowers regret risk.
Cash options and mixing strategies
Cash ISAs pay interest, not dividends. Rates change quickly, and you give up equity upside. Some readers mix cash and shares to steady the ride. Others pair dividend payers with a growth fund to push long‑term income higher. Both routes can work if they suit your risk tolerance and timeline.
One workable benchmark today: plan for a 4–5% portfolio yield and aim to build a £300k–£400k ISA if £1,300 a month is your line in the sand.
Extra pointers for readers building now
- Automate contributions on payday. Friction kills good intentions.
- Hold at least 20–25 positions for broader sector cover.
- Keep costs low. Every 0.5% saved in fees lifts your future income.
- Rebalance annually. Trim winners that dominate, top up quality laggards.
- Stress‑test your income. Could it cope with a 20% dividend cut and still pay the bills?
This is a plan you can track. Set the number, pick a sensible yield, and grow the ISA methodically. The headline is £1,300 a month. The work is consistent saving, calm diversification and careful selection.
Are these pot sizes in nominal terms, or inflation-adjusted? If the target needs to rise each year, the “pot” might need to be bigger. Also, are you assuming dividends reinvested net of fees and slippage? Feels like costs could quietly shave returns.