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ISA vs SIPP: What’s the easiest way to make a million?

If you are serious about saving for the future, then you should be using a tax efficient savings wrapper, such as a SIPP or ISA. Both come with extremely attractive tax benefits for investors but, at the same time, they’re very different products.


First introduced in 1989, SIPPs were initially aimed at self-employed workers that didn’t have access to company pension schemes. Since then, the value of assets within SIPPs has exploded. Today it’s estimated there’s nearly £200bn of investors assets in SIPPs across the UK.

ISAs are also a relatively new invention. Introduced in 1999 by the then chancellor Gordon Brown, ISAs replaced the earlier Personal Equity Plans and Tax-Exempt Special Savings Accounts. In the years since, the product has been refined further with later governments merging Cash and Stocks and Shares ISAs, and introducing a range of new ISA products. 

Compared to SIPPs, ISAs are generally much more flexible. You can put in up to £20,000 a year and withdraw this money whenever you want with no restrictions, as long as you don’t breach the annual limit (rules for Lifetime ISAs are different). 

SIPPs have more stringent rules regarding contributions and withdrawals. Your individual situation will vary, but the general rule is you can deposit 100% of your annual earnings into a SIPP. If you aren’t earning, you can only deposit £2,880 a year. Most providers won’t let you withdraw funds before the age of 55 and, if you do, the tax man will take a large chunk. 

A tax bonus

Despite the lack of flexibility around withdrawals and deposits, the one significant benefit a SIPP has over an ISA is that the government gives tax relief at your marginal rate on any contributions up to £40,000 a year. For a basic rate taxpayer, this means they’ll receive a top-up of 20% on funds deposited.

So, if you want to save £100 a month, you only need to put away £80 and then the government will add £20. Non-earners can deposit a maximum of £2,880 a year, or £3,600 including the tax top-up. This extra tax top-up, in my opinion, makes a SIPP the best vehicle to use if you want to make a million. While the ISA does have its benefits, who can say no to free money?

An immediate return 

The basic rate 20% tax top up means you are effectively receiving an immediate return on your money, a return that will give you a huge helping hand when saving. 

For example, according to my calculations, £100 a month invested in the FTSE 100 via an ISA for 20 years would grow into a savings pot worth £58,300. However, the same £100 a month invested in a SIPP would instantly be worth £125, including the basic rate tax relief, which would grow to be worth just under £73,000 if this monthly contribution was invested in an FTSE 100 tracker, according to my calculations.

This simple example shows why I believe a SIPP is the better product to use if you want to make a million.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.