A Stocks and Shares ISA is one of few ways to build a second income without handing a slice of it to HMRC.

For example, a target of £1,850 a month is big enough to matter but still realistic enough to plan for over 20-30 years. When combined with the UK State Pension, it’s enough to provide most people with enough to live comfortably later in life.

Not only would it cover a big chunk of normal UK living costs, it bridges the gap to a liveable pension and keeps pace with inflation over the long haul.

The full new State Pension is £241.30 a week, or £12,547.60 a year, from 6 April. For those without a workplace pension, that wouldn’t be sufficient without some additional income streams on top to make a real difference.

Sure, we’re not talking about luxury money here but it would certainly make life easier.

The next question is: how much would you actually need to build it?

Calculating compounding returns

Here’s a few examples using realistic averages to eventually reach a point where the ISA returns £1,850 a month in passive income.

These figures assume regular monthly investing and compound growth using market averages, but they’re not guaranteed results. However, they provide some good estimates, revealing why time matters so much.

The longer you invest, the less you need to put in each month. Investors with less time may need to aim for higher returns, although this could increase risk.

So how could you aim even higher?

Stock picking vs index funds

One way to chase a higher income is to pick individual shares instead of buying an index fund. That can boost returns but it also raises risk because a single company can cut its dividend or disappoint on earnings.

That’s why a portfolio of individual picks should always include a diverse mix of 10-12 stocks from various sectors. 

Legal & General‘s (LSE: LGEN) a good example of a popular share to consider for income investors. It recently boosted dividends by 2% to 21.79p, while committing to return more than £5bn to shareholders between 2025-2027.

On 8 May, it completed purchases of 16,869,889 ordinary shares under the first part of its £1.2bn buyback scheme. It also has a 42-year dividend history, giving investors faith in ongoing payouts.

Clearly, the company takes inspiration from legendary investor Benjamin Graham, who once said:

“If managers can’t think of anything else to do with their money they should pay dividends. If they have good places to invest it, that’s much better.”

Still, dividends are never guaranteed, and insurance and retirement businesses are sensitive to markets, interest rates, and capital rules. So investors should always keep an eye on earnings and capital strength.

The bottom line

For a beginner building an ISA income portfolio, Legal & General is the type of company to consider when looking for a long-term dividend compounder (ie it’s not a ‘get-rich-quick’ stock).

The buyback, rising dividend, and solid solvency position all support the investment case. But the shares still deserve monitoring because financial firms can change quickly when markets turn.

I’d see it as a sensible UK income holding, provided it sits inside a diversified portfolio rather than carrying the whole plan.

Mark Hartley owns shares in Legal & General