A Stocks and Shares ISA is one of the smartest ways I know to build long-term wealth. It doesn’t come with upfront tax relief like a pension, but every bit of growth and dividend income is free from HMRC’s reach, which is a powerful advantage.

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.

Investors can put in up to £20,000 each tax year. So how large a pot is needed to throw off a decent tax-free income of £25,000 a year?

Investing in the FTSE 100

A widely used measure for generating income in retirement is the 4% withdrawal rule. This suggests an investor can safely draw that percentage of their portfolio each year without depleting their capital.

To generate £25,000 annually would therefore take a pot of around £625,000. A daunting sum, but achievable with time, patience and discipline. Over 35 years, putting away around £350 a month could get there. This assumes an average annual return of 7%, with dividends reinvested.

That also requires picking the right shares, and I like to combine a mix of dividend-paying companies with steady growers. A diversified spread of FTSE 100 names can reduce the risks.

Reckitt’s been volatile

One company I’ve been keeping an eye on is Reckitt (LSE: RKT), the consumer goods group behind household names such as Dettol, Nurofen and Durex. Once seen as a rock-solid stock, it stumbled after paying too much for US baby formula maker Mead Johnson in 2017, which left it exposed to some costly US class action lawsuits.

Lately, it’s been shrugging off the concerns. The shares are up 28% over 12 months, though still 27% lower across five years. On 24 July, half-year results showed revenue growth of 1.9% with operating profit up 1.8% to £1.7bn. Solid, although far from stellar.

However, management also lifted full-year revenue guidance to 4% and rewarded loyal shareholders with a handy £1bn share buyback.

The Reckitt share price trades at a price-to-earnings ratio of 15.8. That’s around fair value, so it’s not a total bargain today. The trailing dividend yield’s a steady 3.63%. Not the biggest but it should rise over time if earnings strengthen. As ever with shares, there are no guarantees.

That said, risks remain. Litigation around Reckitt’s baby formula division is ongoing. Share price growth may slow after the recent strong run. Consumers aren’t feeling flush right now. As with any stock, I’d only buy with a minimum five-year view.

Compound dividend growth

As Reckitt shows, even steady businesses can go through rough patches, which is why I’d prefer to hold at least a dozen FTSE 100 names rather than relying on just one or two. Mixing dependable dividend payers with companies capable of steady growth can smooth the journey and build resilience.

Don’t expect to build a £25,000 passive income overnight. It takes regular investing, a willingness to sit through volatility and, above all, patience. The sooner investors start, the more time their money has to compound and grow.