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Last chance ISA: I’d aim to turn £20K into £2,000 a year in passive income

Andrew Mackie shows how an ISA strategy built on time, compounding, and quality stocks can turn a £20,000 allowance into a growing passive income stream.

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You don’t need to pick a single stock today to start building passive income — but you do need to use your ISA allowance before the deadline.

That’s because once the window closes, this year’s £20,000 contribution room is gone forever. No catch-up. No second chances.

Should you buy Aviva Plc shares today?

Before you decide, please take a moment to review this report first. Despite ongoing uncertainties from US tariffs to global conflicts, Mark Rogers and his team believe many UK shares still trade at substantial discounts, offering savvy investors plenty of potential opportunities to learn about.

That’s why this could be an ideal time to secure this valuable research – Mark’s analysts have scoured the markets to reveal 5 of his favourite long-term ‘Buys’. Please, don’t make any big decisions before seeing them.

And the real advantage isn’t just the tax-free wrapper — it’s starting the compounding clock as early as possible.

From there, you can gradually build a portfolio designed to generate growing passive income over time, without rushing into decisions today.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Working toward a £2,000-a-year income target

At first glance, £20,000 producing £2,000 a year in passive income implies a 10% yield — something I wouldn’t try to achieve upfront.

Instead, I see the ISA as the starting point of an income engine, not the finished product.

A sensible starting portfolio might yield 4%–6%, generating around £800–£1,200 a year in income. But the real power comes from what happens next: reinvesting those dividends and allowing companies to increase payouts over time.

That combination — reinvestment plus dividend growth — is what can gradually turn a modest starting income into something closer to £2,000 a year.

Steady compounder

If I were putting that ISA to work today, I wouldn’t start with speculation — I’d start with income visibility. And one of the first names I’d consider is Aviva (LSE: AV.).

At a yield of around 6%, it already does a large part of the job for you. On a £20,000 ISA, that’s roughly £1,200 a year in income before reinvestment or dividend growth is even considered.

But the real attraction isn’t just the headline yield. It’s the improving quality of that income stream. The insurer’s shift towards a more capital-light business mix and stronger cash generation means dividends are better supported than in the past.

Of course, this is still a financial stock. Bond markets, credit conditions, and economic downturns can all pressure capital strength and earnings in the short term.

But as a starting point for an income portfolio, it gives you something crucial: immediate yield today, with the potential for that income to compound over time.

Diversify the income engine

But Aviva alone isn’t the portfolio — it’s one type of steady compounder, where income is supported by financial markets and balance sheet strength.

National Grid (LSE: NG.) sits in a different category. It’s still a long-term income compounder, but with far greater earnings visibility thanks to its regulated structure.

As a regulated utility, returns are linked to inflation, with allowed revenues adjusting over time. That creates a built-in mechanism for steady income growth.

More importantly, earnings expand as the business invests in its network. With more than £60bn committed to upgrading infrastructure across the UK and US, the regulated asset base continues to grow — and with it, future income potential.

On top of that, electricity demand is structurally rising. Electrification and AI-driven data centres are increasing long-term grid usage, reinforcing the need for ongoing investment.

The result is not just a defensive yield stock, but a long-duration compounding asset with embedded growth potential that many income investors overlook.

These are just two quality dividend compounders I’d consider for a diversified portfolio — but they’re far from the only income opportunities on my watchlist.

Andrew Mackie has positions in Aviva Plc and National Grid. The Motley Fool UK has recommended National Grid Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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