About the SIPP vs ISA vs LISA quiz
The quiz answers a question every UK saver hits sooner or later: where does the next pound of savings go? The honest answer depends on three things. Your marginal income tax band determines how much tax relief a SIPP contribution pulls back. Your age and home-buying intent determine whether a LISA and its 25% bonus is useful or a trap. Your savings rate and ISA carry-forward room determine whether you have enough capacity to split across all three wrappers. The quiz applies HMRC 2025-26 rules and returns a specific allocation, not a vague suggestion.
How the math works
- Income maps to a marginal tax band: 0% under GBP 12,570 Personal Allowance, 20% basic to GBP 50,270, 40% higher to GBP 100,000, 60% effective inside the GBP 100K-GBP 125,140 taper, 45% additional above GBP 125,140.
- A SIPP contribution gets relief at the marginal rate. GBP 100 of SIPP costs the saver GBP 80 (basic), GBP 60 (higher), GBP 40 (60% trap) or GBP 55 (additional rate).
- An ISA contribution is post-tax in, but grows tax-free and withdraws tax-free. No relief, but no withdrawal restrictions.
- A LISA gets a flat 25% government bonus on contributions up to GBP 4,000/yr (max GBP 1,000/yr bonus), but only opens to ages 18-39 and only releases penalty-free at age 60 or for a first home under GBP 450,000.
- The quiz scores each wrapper for your situation, ranks them, and slots your annual savings into the highest-scoring wrapper first up to its annual cap, then the next.
- The 20-year compound chart uses a 6% real return assumption and projects what each wrapper alone would grow to with your full annual savings rate, illustrating the gap.
20-year compound projection
What each wrapper would grow to over 20 years at your savings rate, assuming a 6% real return after costs:
Chart uses 6% real return. SIPP line includes the tax relief gross-up effect (post-withdrawal-tax balance). LISA shows the 25% bonus capped at GBP 1,000/yr.
The three wrappers at a glance
| Account | Annual limit | Tax in | Tax out | Access | Best for |
|---|---|---|---|---|---|
| SIPP | GBP 60,000 (or 100% relevant earnings, lower) | Marginal rate relief: 20/40/45% | 25% tax-free up to GBP 268,275 LSA, 75% as income | Age 57+ from 2028 (currently 55) | Higher/additional rate taxpayers; 60% trap; self-employed |
| ISA | GBP 20,000 | Post-tax in (no relief) | Tax-free withdrawal | Any time, any age | Basic rate; emergency fund; flexible retirement bridge |
| LISA | GBP 4,000 (counts toward ISA GBP 20,000) | Post-tax in + 25% bonus from HMRC | Tax-free withdrawal at 60 or first home under GBP 450K | First home or age 60; otherwise 25% penalty | First-time buyers aged 18-39 (open before 40) |
Sensitivity: tax band and the 60% trap escape
How much net wealth each GBP 10,000 of savings creates after 20 years at 6% real return, by tax band:
| Marginal band | SIPP net | ISA net | LISA net | SIPP advantage |
|---|---|---|---|---|
| 20% basic | GBP 27,200 | GBP 32,000 | GBP 40,000 | vs ISA: -15% |
| 40% higher | GBP 36,300 | GBP 32,000 | GBP 40,000 | vs ISA: +13% |
| 60% effective trap | GBP 54,400 | GBP 32,000 | GBP 40,000 | vs ISA: +70% |
| 45% additional | GBP 39,500 | GBP 32,000 | GBP 40,000 | vs ISA: +23% |
Net values after standard 25% tax-free + 75% at income-rate withdrawal for SIPP. The 60% tax trap column shows why SIPP is so attractive between GBP 100,000 and GBP 125,140 of income.
Worked example: GBP 75,000 income, age 32, first-time buyer, GBP 15,000/yr savings
The default quiz scenario. Income lands squarely in the 40% higher-rate band, age is under the 40 LISA cut-off, first-home buyer, decent annual savings capacity.
- Step 1 - capture employer match. Free money beats any wrapper. If employer matches 5% on a GBP 75,000 salary, that is GBP 3,750/yr free. Always take the full match first via workplace pension (often using salary sacrifice for extra NI saving).
- Step 2 - LISA up to GBP 4,000. At age 32 with a first home in mind, GBP 4,000 a year captures the maximum GBP 1,000 bonus. That is a guaranteed 25% return on day one, well before any market growth. Lock-in: must use for first home under GBP 450K or wait until 60.
- Step 3 - SIPP for higher-rate relief. Income above GBP 50,270 is taxed at 40%. A GBP 5,000 SIPP contribution costs GBP 3,000 after relief (GBP 1,000 auto + GBP 1,000 reclaimed via Self Assessment). 40% relief beats 0% on an ISA.
- Step 4 - ISA mops up the rest. Remaining GBP 2,000 of the GBP 15,000 budget goes into a Stocks and Shares ISA. Tax-free growth, fully flexible, can be raided for an emergency or to support a first-home deposit in 2-3 years.
- Tax saved this year: approximately GBP 2,000 in higher-rate relief on the SIPP, plus GBP 1,000 LISA bonus = GBP 3,000 of free money on a GBP 15,000 savings rate. Compounded across 20 years that handicap snowballs to roughly GBP 100,000 of extra wealth.
Worked example: GBP 110,000 income (the 60% tax trap)
Anyone whose income lands between GBP 100,000 and GBP 125,140 faces the 60% tax trap: every GBP 2 of additional gross income loses GBP 1 of Personal Allowance, so the effective marginal rate on income inside that band is 60% (income tax 40% + Personal Allowance taper 20%).
- SIPP escape. Pension contributions reduce adjusted net income for the Personal Allowance taper. A GBP 10,000 SIPP contribution brings income from GBP 110,000 down to GBP 100,000, restoring the full Personal Allowance.
- Net cost. GBP 10,000 SIPP contribution: GBP 2,000 auto basic-rate relief in the SIPP. Self Assessment reclaim of GBP 4,000 (the extra 20% to reach 40% on the full GBP 10,000, plus the regained Personal Allowance). Net cost approximately GBP 4,000 for a GBP 10,000 SIPP balance.
- Effective relief: 60%. That GBP 6,000 of saved tax represents a 60% effective return before any market growth. No other UK wrapper comes close.
- Limit: the strategy only works on the income inside the GBP 100K-GBP 125,140 band; below or above that the relief drops back to the standard band rate.
When the LISA penalty erases the 25% bonus
The 25% LISA bonus comes with a leash: withdraw for anything other than a first home under GBP 450,000 or age 60 and HMRC charges a 25% penalty on the entire withdrawn balance, not just the bonus.
| Action | Contribution | Bonus added | Penalty | Net to you | Loss |
|---|---|---|---|---|---|
| Hold to first home | GBP 4,000 | GBP 1,000 | 0 | GBP 5,000 | 0 |
| Hold to age 60 | GBP 4,000 | GBP 1,000 | 0 | GBP 5,000 | 0 |
| Withdraw early (non-qualifying) | GBP 4,000 | GBP 1,000 | 25% on GBP 5,000 = GBP 1,250 | GBP 3,750 | GBP 250 of own money |
| Buy a GBP 460K home in London | GBP 4,000 | GBP 1,000 | 25% on GBP 5,000 = GBP 1,250 | GBP 3,750 | Property cap exceeded; LISA bonus lost |
The London buyer trap matters. The GBP 450,000 cap has not increased since LISA launched in 2017 even though London prices have. A LISA opened today aged 30 may face a home market in 2034 where GBP 450K buys far fewer homes than it does now. Plan accordingly, or use a SIPP/ISA combination if you live in a high-cost area.
Spousal allowance: doubling the GBP 20K and GBP 4K caps
Each ISA and LISA cap is per individual. A married couple or civil partnership each has their own GBP 20,000 ISA, GBP 4,000 LISA and GBP 60,000 SIPP allowance, even if the household has a single income.
- Single-income couple, partner not earning. The earning partner can gift money to the non-earning spouse, who then deposits it into their own ISA and LISA. Combined household sheltering: GBP 40,000 ISA + GBP 8,000 LISA + GBP 2,000 LISA bonus = GBP 50,000/year.
- Non-earner SIPP. A non-earning spouse can still contribute GBP 2,880 net (GBP 3,600 gross) into a SIPP and receive the 20% basic rate relief, even with zero relevant earnings. Cheap free GBP 720/year.
- Inter-spousal capital gifts are tax-free. Unlike many countries the UK has zero gift tax between spouses, making the doubling fully legal and friction-free.
Self-employed: the SIPP-only path
Self-employed people have no workplace pension, no salary sacrifice and no employer match. The SIPP is the only personal pension wrapper available. Contributions remain capped at the lower of GBP 60,000 or 100% of relevant earnings.
- Tax relief mechanism. Contribute net out of your bank account, HMRC adds basic-rate relief inside the SIPP, you reclaim higher/additional rate via Self Assessment. Same mechanics as employed savers using SIPP.
- Smooth lumpy income. Carry-forward up to 3 years means a self-employed person with a big-profit year can use prior years unused allowance to shelter a one-off payday. Up to GBP 240,000 in a single tax year is possible if the prior 3 years had no contributions.
- Ltd company shareholders can have their company contribute employer pension contributions on their behalf, often more tax-efficient than dividends. This is treated as employer relief and is uncapped by personal earnings (only the annual allowance).
Common SIPP vs ISA vs LISA mistakes
- Skipping the employer match. A 5% match on a GBP 50K salary is GBP 2,500/yr of free money. No other wrapper matches that day-one return. Always take the full match before SIPP, ISA or LISA top-ups.
- Forgetting Self Assessment higher-rate reclaim. A SIPP for a 40% taxpayer gets only the 20% basic rate added automatically. The extra 20% requires a Self Assessment claim. Easy to miss, particularly for PAYE taxpayers who do not file otherwise.
- Opening a LISA after age 40. You must open the LISA before your 40th birthday. Wait until 39 years 11 months and your bonus pipeline is shut for life.
- LISA double-counted against ISA cap. The GBP 4,000 LISA contribution counts toward the GBP 20,000 overall ISA cap. So maxing LISA leaves GBP 16,000 for cash/stocks/innovative ISAs.
- Triggering MPAA accidentally. Taking a small flexi-access drawdown of just GBP 1 of taxable income (beyond the 25% PCLS) drops your annual allowance to GBP 10,000 for life. Verify carefully if still earning and contributing.
- Using LISA for a property over GBP 450K. The price cap is a hard line. GBP 451,000 home: 25% penalty applies even if everything else qualifies. Use SIPP/ISA for higher-cost homes.
- SIPP fee creep. Hargreaves Lansdown 0.45% platform + 0.50% fund vs Vanguard 0.15% platform + 0.22% fund. A 0.58% gap over 30 years on a GBP 500K pot is roughly GBP 95,000 of foregone wealth.
The formula explained
The quiz applies six chained rules to your inputs:
1. Tax band lookup: income to marginal rate (0/20/40/60/45%)
2. SIPP cost per GBP 100 gross = 100 * (1 - marginal_rate)
3. LISA effective return = 1.25 * (1 + r)^n at age 60 or first home
4. ISA effective return = (1 + r)^n, fully tax-free
5. SIPP withdrawal: 25% tax-free + 75% taxed at retirement marginal rate
6. Priority score = relief_now + bonus_now - lockin_penalty - access_penalty
The rules come from HMRC Personal Tax Manual (PTM), Finance Act 2024 (LSA replacement), and gov.uk LISA/ISA guidance. The quiz uses a 6% real return assumption (post-cost, post-inflation) which is conservative vs the 7% UK equity historical average.
To verify: enter (75000, 32, Yes, 3-10, 15000, Yes, 5%, No, 20000). The recommended order should be Match -> LISA -> SIPP -> ISA, with allocation roughly GBP 3,750 match, GBP 4,000 LISA, GBP 5,000 SIPP, GBP 2,250 ISA.
Frequently asked questions
How does pension annual allowance carry-forward work?
You can use unused SIPP annual allowance from the 3 preceding tax years, provided you were a member of a UK registered pension scheme in those years. The current year allowance must be used first. Total combined contributions in a single tax year can reach GBP 240,000 (current GBP 60,000 plus 3 prior years at GBP 60,000) for an additional rate taxpayer with full earnings. Carry-forward does not extend the LISA GBP 4,000 cap or the ISA GBP 20,000 cap, which are use-it-or-lose-it annual.
What is the Money Purchase Annual Allowance (MPAA)?
Once you flexibly access pension income from a drawdown (i.e. take taxable income beyond the 25 percent tax-free lump sum), your annual allowance for future money-purchase pension contributions drops to GBP 10,000 per year. The MPAA does not affect defined benefit accrual. Plan carefully if you intend to keep working and contributing. Taking only the 25 percent Pension Commencement Lump Sum does NOT trigger MPAA.
How does the 25 percent LISA bonus get paid?
HMRC pays the 25% bonus monthly into your Lifetime ISA, based on contributions made the prior month. Maximum GBP 1,000 per year (on GBP 4,000 contribution). The bonus arrives roughly 4-9 weeks after each contribution, so consistent monthly contributions maximise the time the bonus is invested. You earn growth on the bonus the moment it lands inside the LISA, so the effective return on each pound is higher than a simple 25% one-shot top-up.
Is an ISA flexible? Can I take money out and put it back?
Only flexible ISAs allow replacement. A flexible ISA lets you withdraw and replace funds in the same tax year without using extra allowance. Not all ISA providers offer flexibility, so check your account terms. LISAs are NEVER flexible. Stocks and shares ISAs are flexible only if the provider supports it. Cash ISAs are most commonly flexible. From April 2024, you can also pay into multiple ISAs of the same type within one tax year, easing transfer friction.
What is a Junior ISA?
Junior ISA (JISA) is a tax-free savings account for children under 18. Annual allowance GBP 9,000 in 2025-26. Child gains control at 16, can withdraw at 18. JISA does NOT count toward the adult GBP 20,000 ISA allowance. Parents/grandparents can contribute on behalf of the child. Money becomes a regular adult ISA at 18. Contributions are post-tax in but grow tax-free and withdraw tax-free, mirroring the adult ISA structure.
Is the Lifetime Allowance still GBP 1,073,100?
No. The Lifetime Allowance was abolished from 6 April 2024 and replaced by two new limits: the Lump Sum Allowance (LSA) of GBP 268,275 capping tax-free withdrawals across all pensions, and the Lump Sum and Death Benefit Allowance (LSDBA) of GBP 1,073,100. There is no longer a tax penalty for total pension value exceeding GBP 1,073,100, only on lump-sum tax-free amounts above GBP 268,275. The Lifetime Allowance Charge has been repealed.
How does NHS pension interact with SIPP?
NHS pension is a defined benefit (DB) scheme. Your NHS pension accrual counts toward the GBP 60,000 annual allowance via the pension input amount calculation (16 times the increase in pension entitlement, minus inflation indexation). Many NHS doctors face annual allowance breach. You can still open a SIPP on top, but combined contributions must stay within allowance plus carry-forward. NHS scheme pays facility allows penalty payment from the NHS pension itself, avoiding an immediate cash bill.
Can a SIPP withdrawal trigger the 60 percent tax trap?
Yes. If you withdraw enough taxable pension income to push your total income between GBP 100,000 and GBP 125,140, your Personal Allowance tapers (GBP 1 lost for every GBP 2 of income above GBP 100,000), creating a 60% tax trap effective marginal rate. Plan withdrawals to stay below GBP 100,000 or above GBP 125,140 in any given tax year. Phased drawdown across multiple years often saves significant tax. The same trap that makes SIPP highly attractive on the way in punishes overly large withdrawals on the way out.