Now’s a great time to buy high-yielding FTSE 100 income stocks but is it better to invest via a Self-Invested Personal Pension (SIPP) or in a Stocks and Shares ISA?

Both are brilliant tax wrappers, maximising the potential of our portfolios by minimising HMRC interference. But they work in slightly different ways, so which is better?

It’s a tricky question, so I called on artificial intelligence. I don’t use AI to recommend stocks. All too often, the information it throws up is out of date, and in places, plain wrong. But this is the type of technical question it should be able to deal with.

Tax-efficient income

ChatGPT started, very generically, by saying the decision “comes down to timing, tax treatment and personal goals”. It’s better on the technicals, noting that a SIPP gives upfront tax relief. “If a basic-rate taxpayer invests £10,000 they can claim back £2,000, instantly boosting their money.”

Oh, and I’d add that 40% and 45% taxpayers can claim back either £2,000 or £2,500 on their tax return.

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.

ChatGPT then highlighted a catch with the SIPP. “You can’t access the money until age 55 (rising to 57 from 2028), so flexibility is limited.”

It pointed out that ISAs don’t offer upfront relief. The benefits come at the other end. “Investors can spend dividends without worrying about tax, perfect if relying on the income in retirement.”

ChatGPT failed to mention that SIPP investors can take 25% of their pot as tax-free cash, a key benefit. I’d also add that both may be liable to inheritance tax on death.

Diversify tax wrappers

Personally, I think splitting the money is best. Half in a SIPP, half in an ISA. That way we can get some tax relief on the way in, and some tax-free withdrawals on the way out. Although I might favour an ISA for high-yielding shares, as it would be great to make withdrawals completely free of income tax.

There are some stunning dividend yields on the FTSE 100 today, led by insurer Legal & General Group (LSE: LGEN), which pays a trailing income of 8.1%.

The Legal & General share price is starting to spring into life, up 20% in the last year, although it’s still down 4% over five years. Earnings and profit growth has been patchy, and it’s trailed sector rival Aviva badly.

The shares may start to play catch-up, with Legal & General now forecasting that earnings will grow between 6% and 9% this year. No guarantees though. It operates in a competitive sector, where new business opportunities such as pension risk transfer are fought over tooth and nail. I think it’s worth considering for that sky-high yield. Although it may need a bit of a shake-up to get the share price moving again.

Even if the Legal & General share price recovery takes time, investors should still get that income. The board is expected to increase dividends by 2% a year going forward. That’s modest, but acceptable. I can see plenty more high-yielding FTSE 100 dividend heroes to consider, but when it comes to picking stocks, investors should do their own research rather than ask a bot.