When planning for retirement, the Stocks and Shares ISA has one massive attraction. All the share price growth and dividend income you earn will be entirely free of tax for life.
That means no income tax, no dividend tax and no capital gains tax. This is really handy when building your wealth while working, as your money rolls up tax-free. And it’s even more useful when you retire, as you can take one-off gains or a regular weekly or monthly income without handing a penny to HMRC.
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.
It can also help you manage your wider tax bill, for example, by upping ISA withdrawals to avoid making too many taxable pension withdrawals in any given year. So how much do you need to bag a decent tax-free income in retirement?
How much capital is needed?
For the sake of this article, I’ve chosen a target income of £375 a week. That works out as £19,500 a year. The amount of capital you need to achieve that depends on the yield across your portfolio:
- With a 4% yield, you’d need £487,500 invested.
- At 5%, the required total falls to £390,000.
- And at 6%, the figure drops to £325,000.
A hugely popular way to bag a higher yield is to invest in a spread of FTSE 100 shares that pay above-average dividends. Some yield as much as 5%, 6%, or well above 7%. This doesn’t simply mean going for the highest yield you can find, but looking for companies that have the ability to maintain and increase shareholder payouts over time.
Most companies aim to increase their dividends each year but, inevitably, some are better at it than others. Cigarette maker British American Tobacco (LSE: BATS) boasts a particularly strong track record. It has increased dividends every year this millennium.
Worth a look?
It’s able to do that because tobacco makers generate plenty of cash from their addicted customer base. Although smoking is declining in the West, British American Tobacco still sold 465bn cigarette ‘sticks’ in 2025. It’s done this by using its brands and scale to take a bigger share of a shrinking market. The board’s also targeting new revenue lines from smokeless alternatives, vapes and nicotine pouches.
Today, British American Tobacco has a trailing yield of 5.1%. That’s comfortably above the average FTSE 100 of yield 3.3%. While often seen as an income stock, share price growth has been pretty impressive. The stock’s up 38% in the last year. That’s on top of the income.
Share price growth’s never guaranteed. Nor are dividends. The tobacco sector will remain under constant regulatory pressure and may be prone to expensive class action lawsuits. The bills could run into billions. And, of course, smoking kills.
I think British American Tobacco shares are worth considering from an investment point of view, but understand many won’t want to buy the stock for other reasons. They don’t need to, because there are lots of other FTSE 100 shares offering similar income and growth prospects.
Should you invest £5,000 in British American Tobacco P.l.c. right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if British American Tobacco P.l.c. made the list?
Harvey Jones does not hold any positions in the companies mentioned.
