A Stocks and Shares ISA makes a brilliant home for high-yielding FTSE 100 dividend shares. All income and capital gains are free of UK tax, while reinvested dividends can compound tax-free and can be withdrawn tax-free in retirement too.

Right now, ISA investors seem to be going mad for income. The two most purchased shares on the AJ Bell investment platform over last week are both financial stocks with bumper yields.

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.

Aviva has dividend appeal

First up is FTSE 100 insurer and asset manager Aviva, which accounts for a stunning 11.7% of all stock purchases on the platform. It’s selling more than SpaceX, Rolls-Royce and Nvidia combined.

I’ve wanted to own Aviva for years, but stuck doggedly by rival Legal & General Group, which sadly hasn’t done half so well. The Aviva share price is up 82% over the last five years. Given that it’s yielded as much as 7% at times, reinvested dividends could lift the total return close to 120%.

The trailing yield is now around 5.5% while the shares have slowed, climbing 5.7% over the past year. That’s relatively subdued, but Aviva has held up well during the recent wobble in financial stocks. Its shares look expensive with a trailing price-to-earnings ratio of around 26, but the forward P/E of 18x is less demanding, and reflects expectations of stronger earnings.

Aviva shares are forecast to yield 5.83% this year and 6.26% in 2027. Dividends aren’t guaranteed, but Aviva’s looks solid. First-half 2026 operating profit rose 24% to £1.33bn and the board hiked the interim dividend by 7%. Its Solvency II shareholder cover ratio stood at 176%, towards the top end of its working range.

M&G has an even juicier yield

FTSE 100 investment manager M&G (LSE: MNG) is the second most popular stock among ISA investors, making up 7% of all AJ Bell sales in recent days. I’m happy to say I do own this one.

Since its 2019 spin-off from Prudential, the shares have yielded as much as 10%. That’s what I got when I bought M&G in 2023. With the shares up around 63% over the past couple of years, reinvested dividends have more than doubled my money.

The trailing yield is now around 6.5%. The board plans to increase the dividend by just 2% a year, which is lower than inflation, but the forecast yield of 6.73% this year and 6.94% in 2027 is still pretty handy.

Generating lots of capital

First-half adjusted operating profit rose 15% to £435m, while assets under management and administration reached £387bn. M&G is almost halfway to hitting its full-year £2.7bn capital-generation target, but needs to pick up the pace in the second half. Given the importance of the dividend, any miss could spook income investors.

I think M&G is worth considering, although a wider stock market crash would hurt, reversing recent improved inflows from institutional and retail clients. It might also be an opportunity.

Investors seeking an even higher income shouldn’t miss this FTSE 100 stock yielding 7%. At The Twelfth Magpie, we think it’s well worth checking out too…

What income stock do we like better than Aviva Plc right now?

One of our Share Advisor analysts has just released a brand new stock report that we think is a must-read for any investor looking to try and generate potential income.

And the best bit is that you can see if for yourself, right now, absolutely free of charge!

No jargon. No hard sell. Just a clear look at an income share we think is worth your time.

Harvey Jones owns shares in Legal & General, M&G, Nvidia and Rolls-Royce.