Comparison · 2025/26
SIPP vs Lifetime ISA
Both wrappers add free money to your retirement pot — the SIPP through tax relief on contributions, the Lifetime ISA through a 25% government bonus. The right pick depends on your tax band, age and when you need the cash.
Side-by-Side
| Feature | SIPP | Lifetime ISA |
|---|---|---|
| Contribution limit | £60,000 gross annual allowance | £4,000/year (within £20,000 ISA) |
| Government uplift | 20% basic / 40% higher / 45% additional | 25% flat bonus (max £1,000/yr) |
| Eligible age to open | Any age (parents can open for children) | 18–39 |
| Can pay in until | Age 75 | Age 50 |
| Access age | 57 (from 2028); 55 currently | 60 (or first home) |
| Withdrawal tax | 25% tax-free + 75% taxed as income | 100% tax-free |
| Early-withdrawal penalty | N/A (locked till 55/57) | 25% charge on full amount |
| Counted against estate (IHT) | Outside (changing April 2027) | Inside estate |
| Counts towards ISA £20,000 | No | Yes |
Worked Example: £4,000 contribution at age 30
- Lifetime ISA: £4,000 in → £1,000 bonus → £5,000 invested. At 5% real growth to age 60 = £21,610 tax-free.
- SIPP (basic-rate saver): £4,000 net → £5,000 gross after 20% relief. At 5% to age 57 = £18,710. Take 25% tax-free (£4,678), tax rest at 20% = total £17,492.
- SIPP (higher-rate saver): £4,000 net → £5,000 gross + £1,000 via tax return → effective £4,000 cost for £5,000 invested + £1,000 cash back = £18,710 pot + £1,000 cash.
For a higher-rate taxpayer the SIPP is materially better; for a basic-rate saver the LISA edges ahead if you stay below the £4,000 limit and don\'t need access before 60.
Decision Framework
Choose a SIPP if:
- You\'re a higher- or additional-rate taxpayer wanting maximum tax relief
- You want to shelter more than £4,000 per year for retirement
- You value IHT efficiency and tax-free death-benefits before age 75
Choose a Lifetime ISA if:
- You\'re under 40 and saving for a first home up to £450,000
- You\'re a basic-rate saver who values tax-free withdrawals at 60
- You want a simple flat 25% bonus without self-assessment
FAQs
Can I hold both a SIPP and a Lifetime ISA?
Yes — they are separate wrappers with separate allowances. You can pay up to £4,000 per tax year into a LISA (counts towards your £20,000 ISA allowance) and up to £60,000 (gross) into pensions including a SIPP. Many savers use the LISA to age 60 and SIPP from age 57 (rising to 58 from 2028).
Which gives more tax relief?
For a higher-rate taxpayer a SIPP usually wins: 40% relief via tax return vs the LISA's flat 25% bonus. For a basic-rate taxpayer the headline uplift is the same (25%), but pension contributions still reduce taxable income — useful around the £50,270 threshold or £100,000 personal-allowance taper.
When can I access each one?
Lifetime ISA: from age 60 with no charge, or earlier for a first home up to £450,000. SIPP: from age 57 from 6 April 2028 (currently 55). Early LISA withdrawal for any other reason triggers a 25% government charge — effectively a small loss on your own money.
Is the LISA bonus taxed?
No. LISA growth and withdrawals after 60 are fully tax-free. SIPP withdrawals give you 25% tax-free cash, but the remaining 75% is taxed as income at your marginal rate when drawn.
What if I die before drawing the money?
A LISA forms part of your estate for inheritance tax. SIPPs currently sit outside your estate for IHT (changing from April 2027 under planned reforms), and if you die before 75, beneficiaries usually inherit tax-free.
Calculators & Guides
Calculators for this topic
ISA Calculator
Project ISA savings growth over time with the UK £20,000 annual allowance.
Compound Interest Calculator
Calculate compound interest on savings and investments over any time period.
Mortgage Calculator
Calculate monthly mortgage payments, total interest, and full repayment cost.
Pension Calculator
Estimate your pension pot at retirement and projected annual income.
Disclaimer: Tax treatment depends on individual circumstances and may change. This is information, not financial advice.