When opening a stocks and shares ISA, novel investors often ask me a plain question: how much can you actually earn from it?

The straightforward answer depends on time, consistency and rates of return. But one thing is clear – an ISA alone gives you a powerful advantage.

Any capital gains and dividends earned within an ISA are completely tax-free. No income tax. No capital gains tax. This means more of your profits stay invested and compound over time.

As Vanguard founder John Bogle once said:

“Time is your friend; impulse is your enemy“

Nowhere is this more obvious than with a long-term investing ISA. And what happens if you put it into practice?

Please note that tax treatment depends on each client’s individual situation and may change in the future. The content of this article is for informational purposes only. It is not intended to be and does not constitute any form of tax advice. Readers are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.

Calculating potential income

In the 10 years from 2016 to 2026 Vanguard FTSE 100 ETF achieved a total return of 143% (including dividends). This corresponds to an annual rate of return of 9.3%.

If it maintains similar performance over the next decade, the £500 monthly investment will escalate to £99,678 by 2036.

In other words, a total invested amount of just £60,000 would provide a passive income of £39,678.

This is already a favorable return, but if it continues for another 10 years it could skyrocket to £350,146. At this point the return would far exceed the £120,000 invested.

This illustrates the power of starting early and mixing investment for as long as possible.

While an index-tracking ETF is a good way to capture broad market growth, individual stock selection can achieve even greater gains.

Which stocks provide the most passive income?

Dividend stocks are often a way to earn passive income. However, chasing peak performance can backfire. Companies offering yields above 7% often have difficulty maintaining them.

Common threats include:

• Poor earnings that did not cover the dividend.
• High debt levels limiting cash flow.
• Sudden dividend cuts during economic downturns.

An efficiency of around 5-7% is usually more sustainable.

Watch Hilton Food Group (LSE:HFG), for example.

It’s not the first name that comes to mind for many people when they think of dividend income.

However, it offers a decent yield of 6.5% backed by a solid 20-year track record. Its cash flow covers dividends 2.93 times, and earnings are only 65.4% of payouts.

So what’s the catch?

A recent acute decline in profits irked investors, leading to a 38% drop in prices in 2025. However, an aggressive turnaround of the business led to the appointment of a novel CEO and a renewed focus on its core meat business.

Revenues then grew by 11.9% in the second half of 2025 to £4.2 billion and managed to escalate the dividend by 1.4%.

With the future now looking more promising, the low price could be a great opportunity for value seekers.

Increase in price to group profits (PIN) is an attractive 0.46, so the price may continue to rise as the market realizes the growth potential.

The most significant thing

Hilton certainly has potential and I think it’s a good investment to consider, but nothing is risk-free. Recovery is not guaranteed and margins in food production may be tight.

So while earnings look attractive, investors must remain realistic.

If you want passive income, a stocks and shares ISA is a good place to start. However, this should be combined with disciplined saving and a carefully selected portfolio of companies with proven income.

Mark Hartley has no position in the stocks mentioned. Twelfth Magpie has no position in any of the stocks mentioned. The views expressed about the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor and Hidden Winners.