ISA vs SIPP
Flexible tax-free ISA vs locked-up tax-relief SIPP - which UK wrapper wins?
TLDR
ISA = £20K/year, after-tax money in, tax-free growth, tax-free withdrawal anytime. SIPP = £60K/year (or 100% of income, whichever lower), pre-tax money in (or up to 45% relief claimed back), tax-deferred growth, 25% tax-free + 75% taxable from age 55. SIPP is better for tax arbitrage; ISA is better for life flexibility.
Side-by-side comparison
| Criterion | ISA | SIPP | Winner |
|---|---|---|---|
| 2026/27 annual allowance | £20,000 | £60,000 (subject to tapering) | SIPP |
| Tax on contribution | After-tax (no relief) | 20-45% relief at marginal rate | SIPP |
| Tax on growth | Tax-free | Tax-free | Tie |
| Tax on withdrawal | Tax-free, anytime | 25% tax-free + 75% at marginal | ISA |
| Minimum age to access | Any age | 55 (rising to 57 in 2028) | ISA |
| Investment menu | Any stock/ETF/fund | Any stock/ETF/fund | Tie |
| Withdrawal flexibility | Total - all your money, anytime | Restricted - flexi-access only after 55 | ISA |
| Lifetime allowance | None | None since 2023 (was £1.073m) | Tie |
| Inheritance treatment | Subject to IHT | Outside IHT (under 75); after 75 taxed as income | SIPP |
| Salary sacrifice option | No | Yes (saves NI on top of income tax) | SIPP |
Run your own numbers
Plug in your numbers - the calculator updates instantly. Same math, your inputs.
Estimates only. Returns are not guaranteed. Tax rules and rates current as of 2026-05-16.
When each one wins
When ISA wins
- You may need access to the funds before 55
- You want zero tax-administration complexity (no carry-back rules, no annual allowance issues)
- You're in a low tax bracket and the upfront relief doesn't matter much
- You want to give the money to family at any age (ISAs pass IHT-free to spouse)
- You're using it for medium-term goals (10-year house deposit, kids' education)
When SIPP wins
- You're 50+ and SIPP access starts soon (55) - tax arbitrage matters
- You're in 40% or 45% bracket and want maximum upfront relief
- You have employer salary sacrifice (saves both income tax and NI - free 13.8% boost)
- You're optimising for legacy planning (SIPP outside IHT estate if you die under 75)
- You've maxed ISA and want more tax-advantaged space
The math (typical scenario)
£10,000/year for 30 years at 7% growth, 40% bracket today, 20% bracket in retirement:
ISA (£10,000 after-tax each year) Effective annual cost: £16,667 pre-tax (40% bracket) 30yr corpus at 7%: £10,000 * [(1.07^30 - 1) / 0.07] = £944,608 Tax at withdrawal: 0 Net wealth: £944,608 SIPP (£10,000 + £2,500 tax relief = £12,500 invested) Plus higher-rate relief claimed on tax return: extra £2,500 (£10K extra) Net cost: £10,000 - £2,500 = £7,500 to invest £12,500 30yr corpus on £12,500/yr at 7%: £1,180,760 Withdrawal (25% tax-free, 75% at 20%): £826,532 + £236,152 = £1,062,684 Plus the £2,500/yr tax relief invested in ISA: ~£236K extra Total SIPP+claimed-relief: ~£1.3m vs ISA's £945K (SIPP wins by 36%). But: SIPP can't be touched till 55. ISA can.
How UK tax relief works on SIPP
Basic-rate relief is automatic
You contribute £8,000 net to your SIPP, HMRC adds £2,000 (the 20% basic-rate relief). Your SIPP now holds £10,000. This happens automatically through 'relief at source'.
Higher-rate relief via tax return
If you're in the 40% band, you can claim an EXTRA £2,000 back via your self-assessment tax return. If 45% band, an extra £2,500. This is direct money in your pocket - many UK savers miss this and leave thousands on the table.
Annual allowance tapering for high earners
If your adjusted income exceeds £260K (2026/27), the £60K annual allowance tapers down by £1 for every £2 over, to a minimum of £10K. Very high earners may have just £10K annual SIPP space - so they max ISA + extra wrappers.
Lifetime allowance abolished
Since April 2023, the £1.073m lifetime allowance is gone. No more lifetime limit on SIPP value. But the 25% tax-free lump sum is capped at £268,275.
Frequently asked questions
Can I have both an ISA and a SIPP?
Yes - use both. The £20K ISA limit and £60K SIPP limit are independent. Most savers max ISA first, then add to SIPP for the tax relief.
Is salary sacrifice into SIPP better than direct contribution?
Yes - you save income tax AND National Insurance (12% under £50K, 2% above). Direct contribution saves only income tax. Some employers even add their saved 13.8% employer NI to your pension.
Can I take my SIPP at 55?
Yes until April 2028 - the access age rises to 57 then. You take 25% tax-free (up to £268,275 cap), the rest is taxable when you withdraw.
What's the difference between SIPP and a workplace pension?
A workplace pension (auto-enrolment) is set up by your employer. A SIPP is your own personal pension. You can have both - and consolidate workplace pensions into a SIPP when you change jobs.
Are LISA (Lifetime ISA) and ISA the same?
No - LISA is a separate product. £4K/year limit, 25% government bonus added, age 18-39 to open, withdraw at 60 or for first home. LISA counts toward your £20K overall ISA limit.
Can I lose money in a SIPP?
Yes - SIPPs hold investments (equities, bonds, funds) that can go up and down. Choose low-cost diversified funds (global tracker, multi-asset) for the lowest risk.
What happens to my SIPP if I die before 75?
Your SIPP passes to nominees tax-free, outside your IHT estate. After 75, it's taxed at the beneficiary's marginal rate.
Can I move my SIPP between providers?
Yes - SIPP transfers between providers are typically free and take 2-6 weeks. Common for fee optimisation (e.g., AJ Bell vs Vanguard vs Hargreaves Lansdown).
Is the 25% tax-free lump sum guaranteed?
Current law allows it. Capped at £268,275 since 2023. Pension rules change over time so don't bet your plan on this exact ratio holding for 30 years.
Can I contribute to a SIPP if I'm not working?
Yes - up to £3,600 gross (£2,880 net) per year if you have zero earned income. Children's SIPPs work this way.