Building towards a sizeable tax-free passive income stream is the ultimate goal of many Stocks and Shares ISA investors. But to get there is going to take time for most people for two main reasons.

First, the annual contribution limit is £20,000 a year, which means that even a new ISA yielding a juicy 8% could only pay £1,600 in the first year. While that amount would likely fill a few Christmas stockings, it’s hardly semi-retirement territory.

Second, the data tells us that most people unfortunately can’t afford to invest £20,000 every year — the equivalent of £1,666 a month. So, in this case, it’s going to take even longer to build towards a head-turning passive income sum.

But that doesn’t mean it’s not worth pursuing. Far from it…

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.

Realistic returns

Let’s assume an investor can afford to invest £900 a month, or £10,800 a year, in the stock market. What sort of returns can they realistically expect to gain? Well, it depends on what they buy and how long they stay invested.

The stock market doesn’t go up in a straight line, and it’s even possible to lose money one year to the next. Not all shares outperform, while companies can also cancel dividends when things go south.

British luxury house Burberry, which has suspended its payout, is a recent example of this. The stock is down 50% in just two years!

Having said that, the average annual return of the global stock market is around 10% long term, with dividends reinvested.

If an investor managed to achieve this by investing £10,800 a year, they would end up with £1.1m after 25 years. A paper millionaire, in other words!

At this point, they could take whatever dividends they were receiving as passive income rather than reinvesting them. This could be substantial, depending on what dividend-paying firms they had held across this time.

Alternatively, if they had been focusing mainly on growth stocks, they could sell some or all of those to build a portfolio of high-yield dividend stocks. Were they to collectively yield 6%, the ISA would generate roughly £67,000 a year in passive income.

AI agents are coming

One stock that I reckon is worth considering for an ISA is Salesforce (NYSE: CRM). The cloud-based software giant helps businesses manage sales, marketing, service, analytics, automation, and more.

What I’m particularly excited about here is the company’s launch of Agentforce. Built on Salesforce’s data and AI ecosystem, this lets firms build, customise, and deploy autonomous AI agents. 

These can complete tasks like meetings for sales reps, resolve customer support problems, and act as personal shoppers in e-commerce.

Amazon CEO Andy Jassy recently said: “There will be billions of these [AI] agents, across every company and in every imaginable field…Many of these agents have yet to be built, but make no mistake, they’re coming, and coming fast.”

Now, Salesforce does face stiff competition in AI agents, and there’s no guarantee that it will establish a leading position in this massive future market.

But the early signs are very promising, as it had already closed 8,000 Agentforce deals by the end of April, just six months after launch.

Salesforce stock is trading at 23 times forward earnings, which I think is attractive given the long-term growth opportunity here.