I asked ChatGPT whether it’s better to invest £20k in a SIPP or an ISA and he said…

British investors are blessed with two excellent tax shelters, the Self-Invested Personal Pension (SIPP) and the ISA. A Stocks and Dividends ISA may be the better known of the two, but a SIPP also allows portfolios to grow in a tax-efficient environment. So is one better than the other?

I have stopped asking ChatGPT to help me pick the right stocks to invest in as their answers are so inconsistent and often inaccurate. And today, I confidently confirmed that Rachel Reeves is not the chancellor of the UK, for example. And equally great hymns are made at the mention of it FTSE 100 companies.

Choosing a hard tax

So I thought it would be better to suit another technical job, ie which is the better option, SIPP or ISA? The chatbot started with SIPP. It said that the most attractive thing is the tax relief from the paid money. A basic rate taxpayer puts in £16k and the government tops it up to £20k. The top 40% of taxpayers can also claim an extra £4,000 on their tax return. Ignoring this tax break is like turning down free money.

There is a trade-off. The money is locked in until at least age 55, rising to 57 from 2028. SIPP withdrawals of more than 25% of the net taxable income are taxed as income. From April 2027, Inheritance Tax (IHT) can apply to any unused pot.

Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice. Students are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.

Freedom and flexibility

An ISA does not have that early tax relief but offers more freedom and flexibility. Money grows tax-free, can be accessed at any time, and every cent is exempt from income tax and capital gains tax for life. The tax benefits of an ISA can even be passed on to a spouse or civil partner on death, but when they die IHT can apply.

Mixing the two can make sense. A SIPP can reduce tax liabilities when you come in, while an ISA reduces tax when you go out. I have a lot of money in my SIPP, so I will put my £20,000 into an ISA this year.

The Games Workshop Group is flying

That led to the next question. What might be sitting between those wrappers? This is where I stop asking for help from Artificial Intelligence (AI).

Instead, I applied this rule Games Workshop Group (LSE: GAW), whose impressive run has put the stock on the FTSE 100. Shares are down 6.6% in the past month but are still up 25% in one year and 95% over three.

Half-year results published on 13 January looked strong enough, with sales up 10.9% to a record £332.1m, driven by strong global demand Warhammer illustrations. The problem was not performance but expectations. The price-to-earnings ratio remains at around 32.5, above the FTSE 100 average of around 18. That’s a lot for Games Workshop to live up to.

Investors are also waiting to see how AmazonThe Warhammer TV series, based on the game, lives on. It may increase the audience significantly or damage the brand by disappointing its loyal army of fans.

Given that valuation, I think investors should do a lot of research before considering Gas Workshop. If they don’t like it, there are plenty of exciting early-stage growth stocks in the FTSE 250.

Whether investors use an ISA or SIPP, or both, the approach is the same. Build a balanced portfolio, think long term and don’t leave ChatGPT to do the hard thinking. That part is still down to people.