An ISA passive income of nearly £74,000 a year is the headline figure behind a straightforward comparison: a Stocks and Shares ISA, sustained over 25 years, versus an equivalent portfolio with no tax shelter in place.
The numbers start with £20,000, the current annual subscription limit for a Stocks and Shares ISA. Assuming a 9% yearly total return, that sum compounds to £1,846,480 inside the wrapper over 25 years. A 4% annual drawdown then produces £73,859 a year, free from capital gains tax (CGT) and dividend tax under GOV.UK’s ISA guidance.
The ISA Passive Income Case Against an Unshielded Portfolio
The same 9% return in a non-ISA account produces a sharply different outcome. Tax reduces the estimated final portfolio to £1,373,192 after 25 years, with HMRC collecting just over £249,000 along the way.
Beyond that direct charge, foregone compounding adds a further drag: money paid in tax that could have been reinvested is estimated to cost a further £473,000 in lost wealth. A 4% drawdown on the lower base yields £54,928 a year, roughly £19,000 less than the ISA equivalent.
The tax drag on non-ISA portfolios has since increased. From 6 April 2026, the basic-rate dividend tax on non-ISA income above the £500 annual allowance rose to 10.75%, up from 8.75%, according to the Association of Taxation Technicians. Higher-rate taxpayers now face 35.75%, up from 33.75%. The original illustration used pre-April 2026 rates, so the gap between sheltered and unsheltered returns is now wider than those figures imply. The £500 dividend allowance is unchanged for 2026/27, but for a portfolio of the scale illustrated it covers only a fraction of the income generated.
What the iShares FTSE 250 ETF Actually Delivers
The iShares FTSE 250 UCITS ETF (LSE: MIDD) is one vehicle for building that ISA passive income through diversified UK mid-cap exposure. It launched on 26 March 2004, holds 235 securities, and carries a total expense ratio of 0.40% per annum, according to the BlackRock iShares FTSE 250 UCITS ETF fact sheet.
The original article cited a 9% average annual return since the fund’s launch. BlackRock’s own published data differs. As of 30 June 2026, the fund’s annualised total return since inception was 8.75% in GBP; its benchmark, the FTSE 250 Index, returned 9.25% annualised over the same period, per the BlackRock UK product page. The fund has trailed its benchmark by 0.50 percentage points since inception, broadly in line with the annual fee. Over shorter horizons, the 5-year annualised return was 3.62% and the 10-year figure was 5.83%.
The fund’s 12-month trailing yield was 3.56%, with a price-to-earnings ratio of 13.60x, as reported in the December 2025 fact sheet. Net assets stood at £692.72 million. Income is distributed quarterly, a practical feature for investors drawing down for regular cash flow. JustETF records a maximum drawdown since inception of 63.14%, a figure that puts the long-run growth record in context.
Among mid-cap constituents that have since graduated to the FTSE 100 are Games Workshop, Softcat, and IG Group, illustrating the index’s role as a pipeline for larger-cap promotions.
The overall ISA subscription limit remains £20,000 per tax year. From April 2027, cash ISA contributions for those under 65 will be capped at £12,000 per year, according to PwC Tax Summaries. The change does not affect Stocks and Shares ISA allowances: the full £20,000 can still be directed into equities.
The £73,859 annual ISA passive income figure rests on a 9% return assumption. BlackRock’s own annualised data since inception stands at 8.75%, and the fund’s five-year and ten-year returns are lower still. At those rates, the 25-year endpoint falls short of the £1,846,480 used in the illustration. Investors should stress-test the projection against the fund’s actual published performance before treating the headline figure as a base case.
