SIPPs vs stocks and shares ISAs

If you're trying to decide between a SIPP or a stocks and shares ISA, here's what you need to know.

If you’re on the hunt for a tax-efficient way to invest for the future, you may have come across both SIPPs and stocks and shares ISAs. Both let you choose where your money is invested, and both have tax benefits. But there are some important differences that will affect which one best suits your goals. Our guide summarises the key things to consider.

What is a self-invested personal pension?

A SIPP, or self-invested personal pension, is a type of private pension. Private, or personal, pensions are schemes that you open yourself, as opposed to a workplace pension that is opened via your employer. SIPPs are defined-contribution (DC) pension schemes. As with all DC pensions, the money you pay in is invested. The idea is that your investments will grow over your lifetime, giving you a decent pot to draw on when you retire.

When you put money into a SIPP, you will benefit from the same tax relief on contributions as you would with any regulated pension product.

What is a stocks and shares ISA?

A stocks and shares ISA is a type of ISA that lets you put your savings into investments, including stocks and shares, funds and corporate bonds. As with all types of ISA (including cash ISAs) any returns you make on your contributions are free of tax.

SIPP key facts

  • SIPPs are designed to help you save towards your retirement by providing a tax-efficient wrapper for you to invest.
  • You receive pension tax relief on contributions to a SIPP, up to a maximum per year (£60,000 as of the 2024/2025 tax year). Usually, this will mean that 25p is added to your SIPP pot for every £1 that you pay in. This reimburses the basic rate tax you will have paid on your income. If you’re a higher-rate tax payer, you must claim back the extra tax through your tax return or by contacting HMRC.
  • Any returns you make on money held in a SIPP (such as investment growth, bond interest, or dividend payments) are tax-free.
  • You can open and pay into multiple SIPPs at the same time.
  • Except in very rare circumstances, you can’t access the money in a SIPP before you turn 55 without paying huge tax penalties.
  • Unlike regular personal pensions, which are typically managed by the pension provider, many SIPPS allow you to take direct control over how and where your money is invested. They tend to be suitable for more experienced investors, as this approach carries a higher risk.

Stocks and shares ISA key facts

  • Stocks and shares ISAs are designed to encourage people to save for the future because of the tax breaks on offer.
  • There is a cap on the amount you can contribute to a stocks and shares ISA each tax year, known as the ISA allowance. As of the 2024/2025 tax year, this cap is £20,000. It applies across all types of ISA you may hold (including cash, stocks and shares, innovative finance, and lifetime ISAs).
  • The contributions you make to a stocks and shares ISA don’t benefit from tax relief. However, any returns you make are tax free (such as investment growth, bond interest, or dividend payments), and you won’t pay any tax when you make withdrawals from an ISA.
  • You can only open and pay into one stocks and shares ISA per tax year.
  • While, in general, it’s recommended to keep money invested for at least 5 years (to smooth out any short-term market volatility), you can usually withdraw money from a stocks and shares ISA whenever you want.
  • You can either take direct control over managing the investments in a stocks and shares ISA, or opt for a managed account (where the provider recommends investments based on your preferences, and manages any trades on your behalf).

What are the main similarities between SIPPs and stocks and shares ISAs?

The main things that SIPPs and stocks and shares ISAs have in common are:

  • Both offer a tax-efficient way to save for the future, and can be used to help fund your retirement.
  • With both, your contributions are invested into assets such as stocks and shares, funds and bonds.

However, beyond that there are a number of differences that are likely to affect which of them is best for your circumstances.

What are the main differences between SIPPs and stocks and shares ISAs?

While there are some similarities between SIPPs and stocks and shares ISAs, there are also some important differences. We’ve outlined the main ones below; review these carefully before deciding which is the best home for your savings.

SIPPStocks and shares ISA
What are the tax benefits?SIPP holders receive tax relief on contributions. Basic-rate tax relief is usually added to your account by the SIPP provider; higher-rate taxpayers must claim extra tax relief separately.*
Returns made within a SIPP are free of tax (including capital gains tax, dividend tax and income tax).
Withdrawals from a SIPP may be subject to income tax if your annual income (including SIPP withdrawals) exceeds your annual allowance.
No tax relief on contributions.
Returns made within a stocks and shares ISA are free of tax (including capital gains tax, divident tax and income tax).
Withdrawals from a stocks and shares ISA are not subject to income tax.
What is the annual savings limit?£40,000* or the level of your annual income (whichever is lower). You can make contributions above this level, but they will not qualify for tax relief.£20,000 across all types of ISA. You cannot contribute above this level.
How many accounts can you have?As many as you wish.One per tax year. You can also hold one cash ISA, one innovative finance ISA, and one lifetime ISA (aged 18-39 only).
When can you withdraw money?From age 55. If you withdraw money before this age, you will face a substantial tax penalty.Any time.

* Applies across all pensions you hold. If you have an income of £200,000 or more, your personal allowance is likely to be reduced. If you do not have an income, your allowance is £3,600.

Does a SIPP or a stocks and shares ISA have better tax benefits?

Zoe Stabler

Finder expert Zoe Stabler answers

Right, well for starters let’s deal with the tax break that both savings vessels have in common. While your money remains housed in either a SIPP or a stocks and shares ISA, any gains you make are not subject to capital gains tax, and any interest or income you earn is also tax-free.

So on that basis, the two options are equally matched from a tax perspective.

The differences kick in when you put money in and take money out. Contributions you make to a SIPP receive tax relief, whereas you don’t get this with a stocks and shares ISA.

On the other hand, you won’t pay tax on withdrawals from a stocks and shares ISA. With a SIPP, you can withdraw a 25% lump sum tax-free, but any other withdrawals may be liable for income tax. The rate you’ll pay will depend on your total income in a tax year.

How can tax relief boost my SIPP savings?

Let’s say that you’re a basic-rate tax payer and put £200 a month (£2,400 a year) into a stocks and shares ISA for 20 years, and the same into an SIPP. Let’s assume a growth rate of at a steady 5% on each savings pot. In both cases, you’d have contributed £48,000 by the end of the 20 years (for the purposes of simplicity, we’re assuming that your contributions wouldn’t increase over time, as might usually be the case in practice).

But, after 20 years, you’d have substantially more in your SIPP than you would in your stocks and shares ISA. That’s because tax relief adds an extra £25 to your SIPP for every £100 you contribute. So you’d have:

  • Around £80,000 in your stocks and shares ISA
  • Around £100,000 in your SIPP – £20,000 more than in your ISA.

Plus, higher-rate taxpayers will be able to claim back extra tax relief, via a tax return or by contacting HMRC directly.

But, of course, as soon as you start withdrawing money from your SIPP, you’ll be liable for income tax on anything above the 25% tax-free lump sum, whereas ISA withdrawals are tax-free. It’s more difficult to directly compare the impact this may have as it depends on how often you make withdrawals and the size of those withdrawals, plus what other income you receive.

How can I choose between a SIPP and a stocks and shares ISA?

On face value, the tax relief on contributions makes a compelling argument for saving into a SIPP rather than an ISA.

However, that’s not the only factor at play in most people’s decisions. Another crucial factor is flexibility.

SIPPs are designed solely to save for retirement, and you can’t access the money in a SIPP before the age of 55 without paying a punitive tax charge. Stocks and shares ISAs are more flexible. You can access your funds at any time, making them more suitable for medium-term savings goals such as a wedding or sending a child to university.

It’s worth noting that neither is suitable for short-term saving. That’s because, as with all investing, you should be willing to keep your money in place for at least 5 years. This gives it a better chance to ride out any short-term market volatility.

But, generally speaking, you may be best off with a SIPP (or a standard personal pension) if you’re saving for retirement. For anything else, consider a stocks and shares ISA instead.

Can I invest in both a SIPP and a stocks and shares ISA?

You certainly can – it’s not a binary choice. As you’ll have learned from the rest of this guide, both options have pros and cons, and are likely to be suitable for different purposes.

There’s nothing stopping you splitting your savings between a SIPP and a stocks and shares ISA. This can give you both the peace of mind that you’ll have money put away for retirement, plus the flexibility to access some of your savings if you need them sooner.

If you’re not sure what option, or combination, is best for you – or whether you should be looking into completely different ways of saving – seek expert advice. Government-backed service MoneyHelper can provide general guidance on your options. Or, if you want more tailored advice, you could consider paying for a regulated financial adviser.

Pros and cons of SIPPs


  • No tax is payable on returns within a SIPP
  • You receive tax relief on contributions, making a SIPP an effective way to save for retirement
  • Give you more control and more choice of investments than a standard personal pension
  • You can have as many SIPPs as you want


  • You can’t usually access the money in a SIPP before the age of 55
  • Most SIPP withdrawals will be subject to income tax
  • As with any investments, the value of a SIPP may go down as well as up
  • Tax relief only applies to a maximum of £60,000 of annual contributions

Pros and cons of stocks and shares ISAs


  • No tax is payable on returns within a stocks and shares ISA
  • More flexible than SIPPs as you can withdraw money whenever you want
  • Offer the potential for higher returns than a cash ISA
  • You decide where and how your savings are invested


  • No tax relief on contributions (though withdrawals are free of tax)
  • ISA allowance limits you to £20,000 of contributions per tax year
  • You can only pay into one stocks shares ISA each tax year
  • As with any investments, the value of a stocks and shares ISA may go down as well as up

Bottom line

Stocks and shares ISAs and SIPPs both offer tax-efficient ways to invest for the medium- to long-term. If you’re saving for retirement, a SIPP may be best. If you are likely to need your money before you retire, consider a stocks and shares ISA. And remember, there’s nothing stopping you having both.

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