£1,000 a year from ETFs: how much would you need to invest?

Buying an income fund with a range of different holdings is an effective way of getting a diversified stream of income. This means if one dividend is cut or one investment goes wrong, the impact on your overall income is less.

While funds can typically offer a steadier income than a single stock, they also come with management fees that can eat into that amount. This makes a case for looking at exchange-traded funds (ETFs), which often benefit from lower ongoing charges than a standard fund. This could allow you to keep hold of more of the cash paid out by your investments.

Investing in ETFs to get £1,000

How much would you need to invest to get £1,000 in income each year? We looked at the most popular ETFs on the AJ Bell platform which distribute rather than accumulate income and have historic yields of 3.5% or more.

There are no forecasts for dividend payments from ETFs, so we can only look at what they have paid out for the preceding 12-month period. What they pay out in the future could be higher again in the underlying holdings generate a higher income. Equally, the total could be lower if the reverse were true.

The table shows how much you might need to invest to get £1,000 in annual income from each ETF based on the historic yields.

We have factored in the ongoing charges, and the difference higher charges could make is stark. Assuming it offered the same level of yield, a hypothetical income fund with ongoing charges of 1% would require you to invest nearly £4,000 more to hit the £1,000 mark versus the iShares UK Dividend ETF, which has ongoing charges of 0.4%. This is the highest level of charges of the products we’ve included in this list.

The iShares UK Dividend ETF is one of two names in the table which derive income from equities, the other being Invesco S&P 500 High Dividend Low Volatility ETF.

The UK dividend product focuses on the 50 large- and mid-cap stocks from the FTSE 350 index with the highest one-year forecast dividend yields (excluding investment trusts). The Invesco S&P 500 High Dividend Low Volatility ETF has a lower yield despite its high dividend label, reflecting the high valuations and less generous dividend policies in the US market as a whole. It includes 50 constituents from the broader S&P 500 index with the least volatile shares that offer the highest historic dividend yields.

Notably the largest annualised total returns come from these two ETFs, reflecting the more limited capital gains typically associated with bonds, which all the other vehicles in our list focus on. While high dividends can be tempting, keeping the total return in mind as well is essential. If your investments have a high yield, but are losing ground in terms of share price, it could mean you are faced with a shrinking pot, and you’ll need add more money each year to maintain the same amount in dividend payments.

What about tax?

If your investments are held inside a Stocks and shares ISA, you will be protected from tax on your dividend payments.

If your investments are held outside a tax-protected wrapper like an ISA, you can get £500 in dividends each year tax free. For a £1,000 income this means you would pay tax on half, assuming the investment was held outside a tax wrapper and you were not earning dividend income from any other investments. On 6 April 2026, the dividend tax rate rose from 8.75% to 10.75% for basic rate taxpayers and from 33.75% to 35.75% for higher rate taxpayers. The additional rate remained at 39.35%.

How income from ETFs works

ETFs are normally set up for either income or accumulation. Income ETFs pay out distributions to holders as cash. Accumulation ETFs effectively reinvest the dividends for you. So, you need to make sure you buy the right version of the ETF if you want to receive the income as cash.

Some ETFs will not offer a choice of income or accumulation versions of their fund. If the ETF invests directly to replicate the performance of the index it tracks, then they receive the dividends associated with the underlying holdings. If the ETF distributes income, the dividends are collated in a cash account and usually paid out on a quarterly, semi-annual or annual basis.

The situation is a little more complex for swap-based ETFs. They receive the performance of the total return index from their swap provider (a broker or investment bank). This includes dividend payments as well as any price changes in the underlying companies. The dividend portion is then separated out and delivered to investors.