I asked ChatGPT if I should buy this top dividend stock in an ISA or SIPP and it said…

A Self-Invested Personal Pension (SIPP) is a brilliant way to save for retirement, but then so is a Stocks and Shares ISA. Both give investors valuable tax breaks, but in slightly different ways. When I asked ChatGPT whether I should hold my ultra-high-yielding Phoenix Group Holdings (LSE: PHNX) shares inside an ISA or a SIPP, it gave a balanced, if slightly cautious, reply.

Both vehicles shield investors from income tax and capital gains tax while their money stays inside, the chatbot said. The key difference is that SIPP investors get upfront tax relief when paying money.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

That’s a major incentive, but one trade-off is that the money’s locked away until at least age 55, rising to 57 from 2028. Withdrawals after that are taxable, apart from the 25% that can be taken tax-free.

“The ISA doesn’t offer any upfront relief, but the flexibility is unbeatable”, ChatGPT added.

Comparing investment wrappers

It continued: “That makes ISAs especially attractive for income stocks like FTSE 100-listed Phoenix, since the entire dividend can be drawn tax-free, helping to limit income tax exposure in retirement”.

I didn’t ask ChatGPT whether Phoenix is worth buying. Chatbots are useless at stock picking, and don’t pretend otherwise. They tend to base their views on information that’s way out of date. So this part’s down to me.

Ultra-high dividend yields can be risky, as the company has to generate plenty of cash to fund it but, so far, Phoenix looks good for it. It’s increased its dividend eight times in 10 years, showing clear commitment to rewarding shareholders.

Today, the shares yield around 7.96%, still miles above the FTSE 100 average of 3.25%. The share price has also rallied strongly, up 35% in the past year. It hasn’t been a smooth ride though and the shares could slip if a stock market crash is coming our way.

So is the dividend safe? 2024 results showed Phoenix generating operating cash of £1.4bn, up 22% year-on-year, supporting both the payout and a reduction in debt. In the first half of 2025, adjusted operating profits climbed another 25%, to £451m, while its £3.6bn Solvency II surplus and strong capital coverage give me confidence in that dividend.

Balancing flexibility and growth

So what’s the right tax wrapper? For those chasing immediate income, an ISA looks ideal, since Phoenix’s sky-high dividends can be taken entirely tax-free. On the other hand, the SIPP does offer valuable upfront tax boost.

In truth, the two work nicely together. Considering some Phoenix shares for each could provide the best of both worlds — tax relief now and tax-free income later. Not a bad combo.

At a price-to-earnings ratio of 14.85, the shares look reasonable value compared to the FTSE 100 average of 18. They’re not without risk, especially if growth slows or the economy stalls, but no stock is risk-free. As I edge closer to retirement, generating a dependable income stream matters more every year.

There are plenty of other dividend shares worth considering for anyone building a long-term portfolio, whether through an ISA or a SIPP. Both offer terrific tax advantages, and are perfect homes for patient investors who like to watch their wealth grow steadily over time. With tax benefits too.

The post I asked ChatGPT if I should buy this top dividend stock in an ISA or SIPP and it said… appeared first on The Motley Fool UK.

More reading

• Investors can target £17,497 in yearly passive income from 2,958 shares in this 8%-yielding FTSE 100 dividend star — here’s how
• 7.5%+ yields! 3 cheap stocks with big British dividends
• Here’s how an ISA worth £20k today could generate £1,600 in passive income by next Halloween!
• See how high-yield dividend stocks could help you target a tax-free £750 monthly ISA income
• How big an ISA is needed to target a £1,000 monthly second income?

Harvey Jones has positions in Phoenix Group Plc. 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.

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