ISA, ISA, ISA. In the run-up to the April ISA contribution deadline, it’s uncomplicated to see why some investors are completely forgetting about Self-Invested Personal Pensions (SIPPs).

In reality, however, ISAs and SIPPs are a way for investors to invest money in the stock market (among other things).

Here I want to look at one positive and one negative aspect of both.

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

A SIPP usually offers a higher annual contribution

How much someone can contribute to an ISA in a given tax year depends on some of their personal details (such as age). It also depends on what type of ISA or ISAs they want to contribute to.

As a general rule, a typical adult investor might deposit £20,000 a year into their ISA. So, if someone focused solely on their Stocks and Shares ISA, they could invest £20,000 – but not a penny more.

In contrast, the typical SIPP holder can contribute more in one tax year. Additionally, it is possible to transfer unused allowances from previous years. This is never possible with ISAs.

The exact amount of your SIPP contribution depends on various factors: the annual contribution limit applies to all private pension contributions, and a SIPP may be just one of them.

Generally speaking, the annual contribution limit for a SIPP will often be much higher than for a Stocks and Shares ISA.

The good news is that an investor can benefit from both. So, for example, if they have already reached their ISA contribution limit, they may have unused funds left for SIPP purposes.

The money in an ISA is not locked away

Now we come to what I consider to be the advantage of an ISA but the disadvantage of a SIPP.

Once an investor has put money into their SIPP, they cannot touch it until a certain age (currently 55). Even at this point, there are rules about how it can be used.

However, a stocks and shares ISA is more elastic. An investor can withdraw his money at any age and at his discretion.

Capital gains and ISA dividends are tax-free

A SIPP allows you to withdraw up to a quarter of your entire stake at valuation (up to a certain limit) tax-free over 55 years. The rest will usually be taxable when withdrawn.

However, all capital gains and dividends collected in an ISA are tax-free.

One share I hold in my SIPP is Diageo (LSE: DGE). The recent shocking dividend cut means I’ll be getting less passive income from it than before.

In my ISA I could choose to pay dividends in cash. In my SIPP I am forced at my age to leave them in the SIPP packaging. This doesn’t bother me for my Diageo holdings, given the modest forward yield.

As a long-term investor, leaving Diageo shares in my SIPP for years suits me. In any case, the price has fallen 51% in five years: I’m making a capital loss, not a gain.

The dividend cut made me incensed. For now, however, I still believe that the current share price overemphasizes the risk to revenue from falling alcohol consumption. I believe this underestimates the value of well-known Diageo brands such as Johnnie Walker and its unique production facilities.

That’s why I’m going to stick with my shares.