The main difference between a SIPP vs ISA is that money paid into a SIPP benefits from tax relief, but money paid into ISAs doesn’t.
Stocks and shares ISAs and self-invested personal pensions (SIPPs) are tax-efficient accounts (or ‘wrappers’) for holding your investments. On this page we’ll look at how each account works, so you can decide which could be best for you and your goals.
Episode 9: The difference between ISAs and SIPPs
Our experts compare and contrast two of the most popular investing accounts: an individual savings account (ISA) and self-invested personal pension (SIPP).
Listen to our Investing Essentials podcastIs a SIPP better than an ISA?
Whether you choose an ISA or SIPP, you can build up a pot of money in a tax-efficient way. Both let you invest in a wide range of funds, shares and bonds, and both let you earn your investment returns tax-free.
When weighing up an ISA vs SIPP, the two biggest differences are:
- How and when you can access your money. You can access money in an ISA tax-free at any time. But you can’t withdraw money from a SIPP until you’re age 55 (57 from 6 April 2028). – and only 25% of the pot is tax-free.
- The tax relief bonus of a SIPP. Though you can access an ISA at any time, you won’t receive any bonuses on the money you save. As a SIPP is a pension, you’ll receive tax relief – a significant top-up from the government on what you pay in.
It may also be worth thinking about a Lifetime ISA, which sits somewhere between an ISA and SIPP. You’ll receive a bonus on the money you pay into a Lifetime ISA, but there’s a government penalty if you take the money out before age 60, unless you’re using it to buy your first home.
Whether you pick an ISA or SIPP or Lifetime ISA, our investment ideas can give you a helping hand when you’re building your portfolio.
Can I have both ISA and SIPP?
Yes, you can. There’s no need to decide between an ISA vs SIPP – you can open both accounts and pay into them both if you’re able. Just make sure you’re aware of the annual limits and allowances that apply to each account.
Can you move money from a SIPP to an ISA?
No, you can’t generally move money between SIPPs and ISAs. The only way you can take money out of a SIPP is when you’ve reached the minimum age of retirement.
ISA vs SIPP – summary
To help you choose, below is a tale of the tape of ISAs vs SIPPs vs Lifetime ISAs:
| ISA | Lifetime ISA | SIPP | ||
|---|---|---|---|---|
| Annual limit | £20,000 pa Across all ISA types |
£4,000 pa Included in £20,000 ISA limit Payments must stop at age 50 |
Annual allowance £60,000 Could be as low as £10,000 if you have a very high income Covers total contributions – those made by you or for you Not a hard limit like ISAs – but tax charge applies on excess |
|
| Bonus/tax relief? | None | 25% government bonus | 20% tax relief added to money you pay in (same as LISA government bonus) Higher rate taxpayers can claim more on tax return Tax relief limited to 100% of earnings |
|
| Employer top ups | No | No | Yes Employers get tax relief on money they pay in for you |
|
| Access | Anytime Tax-free |
First time house purchase From age 60 |
No penalty | Age 55, rising to 57 in April 2028 25% tax free, remainder taxed as income |
| Any other time | 25% penalty charge | |||
| Lifetime limit | No | No | The Lifetime Allowance (LTA) was abolished on 6 April 2024. |
|
Anything else I need to know about ISAs?
Because you can take money out of most types of ISA when you like, tax free, they’re really useful for medium-term savings goals like a holiday or buying a house. (Lifetime ISAs have additional withdrawal restrictions if you want to avoid a penalty.)
You can save up to £20,000 into an ISA each tax year. This is an overall limit, which you can split between all the types of ISA – Stocks and Shares ISAs, Cash ISAs, Lifetime ISAs and Innovative Finance ISAs.
AJ Bell offers a Stocks and shares ISA and Lifetime ISA.
Three flavours of ISA
Don’t know your Lifetime ISA from your Innovative Finance ISA, or your Junior ISA from your Stocks and shares ISA? It can help to split all the ISA types into three broad categories. Let’s take them one by one:
- ISAs that help you invest
- ISAs that help you save in cash
- ISAs that help you save for your first home or retirement
A Stocks and Shares ISA is a popular way of holding shares, funds and bonds, among other assets. You don’t pay any tax on capital gains, and dividend or coupon income from your investments is paid tax-free into your ISA account.
There are also Junior ISAs that parents or guardians can open to help them save for their children.
An Innovative Finance ISA is an ISA you can hold on peer-to-peer lending platforms. Interest is paid tax-free.
Find out more about our Stocks and Shares ISA
A Cash ISA is like a normal savings account, except the interest is tax-free. Unlike a Stocks and shares ISA, your cash won’t be affected by investment fluctuations, but inflation can affect what you can buy over the long term. This risk is worth bearing in mind if you’re considering a SIPP or ISA for retirement.
A Lifetime ISA can be opened by UK residents aged 18–39. It’s designed to help you buy your first home or save for retirement.
You can choose a cash Lifetime ISA or an investment Lifetime ISA, which can hold shares, funds, bonds and exchange traded funds.
Each year, you can pay in up to £4,000, and receive a 25% bonus from the Government. Unlike Help to Buy ISAs (a type of cash ISA no longer available to new savers), the bonus is paid up front.
Once it’s open, you can keep paying into your Lifetime ISA until age 50. You can withdraw your money without penalty when you turn 60, or if you’re using it towards a first home or are terminally ill. Otherwise, you’ll have to pay a withdrawal charge of 25% of the amount you withdraw, which means you could get back less than you put in.
Anything else I need to know about SIPPs?
Difference between SIPP and ISA
With a SIPP, you’re in control of how much you pay into your pension and what you choose to invest in.
Money you personally pay into a SIPP will receive 20% tax relief. That means if you pay in £8,000, the Government automatically adds £2,000 – which you can also invest.
If you pay income tax at 40% or 45%, you can claim more tax relief from HMRC directly, usually via self-assessment. Tax relief is generous, but there are limits that apply.
The amount you can pay into SIPPs personally and get tax relief is limited to your UK earnings. And you’ll only receive tax relief up to age 75.
There’s also the pension annual allowance to think about. The standard allowance is £60,000 and covers all sources, across all your pensions in a tax year. The pension annual allowance is reduced for those with high incomes (usually above £260,000) down to a minimum of £10,000.
SIPP or ISA for retirement?
If you’re thinking of using a SIPP or ISA for retirement, it’s important to consider how and when you can access your funds. You can’t access money in a SIPP until you’re 55 (rising to age 57 from 6 April 2028), which removes the temptation of dipping into your retirement fund in your younger years. Similarly, a Lifetime ISA imposes a government penalty on withdrawals before age 60, unless you’re using the money to buy a first house, or have a terminal illness.
When you’re old enough to access your SIPP, you can take up to 25% of its value as a tax-free lump sum. Anything you take on top of this is taxed at your current income tax rate.
There's no longer a limit on the total value of pension savings you can build up. However, there's a cap on the maximum tax free cash lump sum you can take, now set at £268,275.
Important information: Maximum amounts you can shelter in your ISAs or SIPP can vary.
The information is based on our understanding of current legislation and HMRC guidance. Tax rules can change in the future and the tax treatment depends on your personal circumstances.
If you choose to save in a Lifetime ISA instead of enrolling in, or contributing to, your workplace pension scheme you will miss out on the benefit of your employer’s contributions to that scheme and your current and future entitlement to means tested benefits may be affected.
These articles are for information purposes only and are not a personal recommendation or advice.
An AJ Bell SIPP gives you complete flexibility on how much you save for retirement, and allows you to decide when and where your pot is invested.
An AJ Bell Stocks and shares ISA is an easy, efficient way to invest. It’s completely tax free, so more of what you make stays in your pocket.
Written by:
Charlene Young
Charlene Young is AJ Bell’s Pensions and Savings Expert. She joined AJ Bell from a wealth management firm where she worked with private clients and small businesses as a financial planner. Charlene holds Chartered Financial Planner status and is an associate member of the Society of Trust and Estate Practitioners (STEP).
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