ISAs Vs SIPP?

MysticHare

Hello all, I'm in my late 50s and I'm looking to invest some of my cash into either a SIPP or a stocks and shares ISA, I know these are both great tax wrappers and that with these types of accounts you don't pay any capital gains tax plus other various benefits.

I know that with a SIPP you can withdraw 25% tax free after the age of 55 but will pay income tax on the remaining 75% once you withdraw it. However, looking at ISAs, whilst I appreciate you can "only" invest up to 20k pa, you can at least do this every tax year. Reading up, I can't see that you pay income tax on your ISA withdrawals. So, on the face of it, why would I choose a SIPP over a stocks and shares ISA? 

Am I correct in thinking an ISA is more tax efficient than a SIPP, or have I missed something? Or should I get both?

I have a very good understanding of risk and reward so am happy to self invest.

Thank you

MX5huggy

You’ve missed the tax relief on pension contributions. Pay money into a SIPP and the government adds 25% (because that is the same as not paying 20% tax on original earnings). This means when you withdraw 25% is tax free and if you pay 20% tax on the rest you gain by 6.25%.

You would get 40% tax relief if you pay 40% tax. You also may not pay any tax on withdrawals if your income is under the tax allowance in any year. 

SIPP beats ISA especially as you are old enough to withdraw from a SIPP when you want (be careful withdrawals can limit future contributions allowed).

RateTartExtraordinaire

Also with a SIPP The 25% tax-free part does not have to be taken all in one go. Investigate uncrystalised SIPP drawdown. This could allow you to take a monthly income amount part tax-free / part taxed. The rest of your investments keeps accruing tax free. 

RateTartExtraordinaire

Also https://www.hl.co.uk/help/sipp,-drawdown-and-annuity/sipp/retiring/what-happens-to-my-SIPP-when-i-die
"Any money left in your SIPP when you die can normally be passed to your heirs free of inheritance tax. Any withdrawals they then make will usually be tax free if you died before you were 75. If you die when 75 or older, any withdrawals will be taxed as their income."

Albermarle

Do you have a current pension , or an old pension with previous employment ?

To put a figure on it , a pension has a minimum tax advantage over an ISA of 6.25% , but it can be more .

How much you can take advantage of the tax benefit depends on how much you earn now and your plans for retirement income .

masonic

MysticHare said:

I know that with a SIPP you can withdraw 25% tax free after the age of 55 but will pay income tax on the remaining 75% once you withdraw it.

You'll only pay income tax on withdrawals above your personal allowance. If you plan to retire before state pension age you could get quite a bit more out tax free.