A Stocks and Shares ISA is a highly efficient way to build long-term wealth and a tax-free passive income for retirement. Capital gains and dividends within the wrapper are free from tax for life, with no requirement to report them to HMRC.

The real charm of equity investing emerges over time, as share price growth and reinvested dividends compound over the years. Even modest regular contributions can accumulate into substantial sums, given a decade or two.

Dividends and growth

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.

To generate a target income of £2,050 a month by 2050 isn’t an overnight job. But it’s worth trying, as that adds up to a pretty handy £24,600 a year. Using the widely cited 4% withdrawal rule, a portfolio of around £615,000 would deliver that income without touching the capital.

Let’s consider a 41-year-old investor with an existing ISA balance of £30,000. If they paid in £400 a month, and increased that by 3% every year, they’d blast through that target to have a portfolio worth £643,900 by 2050. This assumes an average annual total return of 7%, with dividends reinvested. These are crude figures but demonstrate how consistent, disciplined investing can achieve long-term goals. Equity returns are never guaranteed, of course.

Investors may track the FTSE 100 broadly, but building a portfolio of individual stocks can deliver superior returns. One I think is worth considering right now is Asia-focused banking giant HSBC Holdings (LSE: HSBA).

HSBC shares are strong right now

An investment in HSBC over the past decade, with all dividends reinvested, would have delivered a total return of around 245%. The shares are still racing along, up 44% in the last 12 months, plus a 4% trailing dividend yield. As a result of its success, the stock’s more expensive than it was, with the price-to-earnings ratio slightly above 14. Yet I still think it remains capable of generating substantial income and capital growth over the long term.

HSBC has a strong record of rewarding shareholders through both dividends and share price growth. It’s also offered generous share buybacks, although these have been paused for nine months, as it needs the money to buy out minority investors in Hong Kong’s Hang Seng Bank.

HSBC earns more than half its revenues from Asia, which gives it a massive growth opportunity. However, this also increases risk, especially as US-China tensions rise.

There are other threats. Higher interest rates have allowed all the banks to widen their net interest margins, but that trend will reverse as rates retreat. Banking is cyclical, with higher credit losses and reduced loan demand during economic downturns.

This is why diversifying across a balanced portfolio of shares and sectors remains essential. Over time, this approach can produce a high and rising passive income in retirement. All tax free inside a Stocks and Shares ISA, of course.