Passive Income Calculator
See how much passive income your UK portfolio can generate in pounds — and how long it takes.
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Starting with £10,000 and contributing £400/month at 7% for 20 years grows to £634,000 — generating £2,113/month in passive income at the 4% rule.
Passive income planning in the UK
UK investors have access to tax-advantaged accounts that can significantly improve passive income outcomes over time. The most impactful are:
Stocks & Shares ISA
£20,000/year
All gains and income within an ISA are completely free of UK tax — no capital gains tax, no dividend tax, and no income tax on withdrawals. The most powerful tax wrapper for long-term passive income building.
Pension (SIPP / Workplace)
Up to 100% of earnings
Contributions receive tax relief at your marginal rate — a 40% taxpayer effectively gets £100 of pension for £60 out of pocket. Accessible from age 57. Best for retirement-focused passive income.
General Investment Account
No limit
No contribution limit, but gains and income are taxable. The annual CGT allowance (£3,000 in 2026/27) allows some tax-free realisation each year. Use after maxing ISA and pension allowances.
This calculator does not model the tax uplift from ISA or pension accounts. In practice, a £20,000/year ISA investor will accumulate significantly more than the pre-tax figures shown, because all returns compound without tax drag.
Capital required for target monthly passive income (ISA) — at different yields
Passive income in the UK is taxed differently from employment income: dividends have a separate annual allowance (£500 in 2024/25, down from £2,000 in 2022/23) and a lower tax rate; rental income is taxed as regular income but with a 20% tax credit on mortgage interest. ISAs (stocks and shares ISAs) shelter up to £20,000/year of investment from all UK tax — income and capital gains — making them the most efficient passive income vehicle for UK investors.
| Monthly target | At 3% yield | At 4% yield | At 6% yield |
|---|---|---|---|
| £500/mo | £200,000 | £150,000 | £100,000 |
| £1,000/mo | £400,000 | £300,000 | £200,000 |
| £2,000/mo | £800,000 | £600,000 | £400,000 |
| £5,000/mo | £2,000,000 | £1,500,000 | £1,000,000 |
How is passive income taxed in the UK?
Dividends: first £500/year is tax-free (2024/25). Above £500: basic rate (8.75%), higher rate (33.75%), additional rate (39.35%). Rental income: taxed as regular income after deductible expenses (maintenance, letting agent fees, insurance — but not mortgage capital repayments; mortgage interest gets only a 20% basic rate tax credit). Savings interest: Personal Savings Allowance — £1,000 for basic rate, £500 for higher rate, £0 for additional rate. Capital gains: Annual Exempt Amount £3,000 (2024/25) — reduced from £12,300 in 2022/23. All of these are eliminated inside a Stocks and Shares ISA or SIPP.
What is the most tax-efficient passive income strategy in the UK?
(1) Max your ISA allowance (£20,000/year): all income and gains inside an ISA are completely tax-free, permanently. Prioritise this above all else. (2) SIPP contributions: receive 20–45% immediate tax relief on contributions; income taxed in retirement at lower rates. (3) Dividends inside ISA: high-dividend UK ETFs (FTSE All-World High Dividend) yield 3–4% tax-free. (4) Property: rental income is less efficient due to income tax + reduced mortgage interest relief, but real estate appreciation and leverage can produce strong total returns. (5) Premium Bonds: £1M per person, prize-fund equivalent of ~4.4% in 2025, fully tax-free.
What passive income rate should a UK investor target for financial independence?
The 4% rule (SWR) applies in the UK as in the US: portfolio size = annual expenses × 25. With UK-specific adjustments: State Pension (full new State Pension = £11,502/year in 2025/26) reduces the private portfolio requirement. If State Pension covers £11,502 of £40,000 annual expenses: you only need to fund £28,498 passively → portfolio required = £712,450 rather than £1,000,000. Building ISA and SIPP wealth aggressively in your 30s and 40s, combined with the State Pension, makes UK financial independence more achievable than the headline numbers suggest.
Disclaimer
This calculator provides estimates only and does not constitute financial, investment, or tax advice. Past investment returns are not a guarantee of future performance. Tax rules, allowances, and rates may change. Always consult a qualified financial adviser before making investment decisions.