How are deposits and withdrawals treated in a model portfolio?

A model portfolio is a ready-made mix of investments, usually funds, built to a set proportion of shares, bonds and cash. When you pay money in, the manager invests it to match those proportions. When you take money out, the manager sells whatever is needed to raise the cash. You do not normally pick which funds are sold.

The practical questions are about timing, cost and tax. New money is invested in line with the model's weightings, so a deposit does not change your asset allocation. A withdrawal can trigger a sale that produces a capital gain, which matters outside a tax wrapper. Charges apply to buying and selling, and cash can sit uninvested while a deal settles.

What a model portfolio is and how it handles cash

A model portfolio is a set of investments held in fixed proportions, run either by a platform, a fund manager or a discretionary manager. You hold it inside an account, and the account type decides the tax treatment. Platforms let you hold investments inside an ISA, a SIPP or a Junior ISA, and also in an ordinary trading account with no special tax benefits, sometimes called a general investment account¹.

Cash arrives in the account before it is invested. On some platforms, that money is held in a client money account, separate from the firm's own money. Trading 212's terms and conditions, for example, state that funds are placed in a client money account⁷. That separation matters if the firm fails, because client money is not treated as the firm's asset.

Cash does not stay uninvested for long in a managed model, but it can sit there between the deposit arriving and the manager dealing. Under ISA rules, wholly cash-like portfolios are treated as ineligible assets, so a model portfolio has to hold investments rather than just cash⁶. Interest earned on cash inside a stocks and shares ISA is not repayable to the investor under the 2026 regulation⁶.

New deposits are invested in line with the model's weightings

When you add money, the manager buys more of the same holdings in the same proportions. If the model holds a set split between shares and bonds, your deposit is divided in roughly that split. The asset mix can change over time as the manager responds to market conditions and maintains the fund's investment approach, but that is the manager's decision about the model, not a result of your deposit⁷.

This is different from choosing funds yourself. If you hold the underlying funds directly, you decide what to buy with new money. In a model portfolio, that decision sits with the manager.

A portfolio with a greater proportion of bonds and cash will be lower risk, but leaves your money vulnerable to being eroded by inflation². That trade-off is built into the model's design, and a deposit does not change it.

Lump sums or regular contributions: how each one is invested

Personal pensions accept regular monthly amounts or a lump sum, and the provider invests it on your behalf⁸. The same choice applies to model portfolios held on a platform: you can set up a monthly contribution or pay in a lump sum.

The investment mechanics are the same either way. The difference is timing and dealing cost. A monthly contribution buys a small amount each month, so you deal more often. A lump sum deals once, which can mean fewer transaction charges but puts all the money in at a single price.

For pensions, the payout depends on how much has been paid in, how the fund's investments have performed, and how you decide to take your money⁸. A defined contribution pension lets you withdraw all or some of the money as a lump sum, or receive payments as income over time instead of buying an annuity⁹.

If you are moving an existing pension into a model portfolio, the transfer can happen in one of two ways: either your old provider sells your investments and moves your money in cash, or the existing investments are moved across as they are, known as an in-specie transfer¹⁰. An in-specie transfer avoids a period out of the market, but not every provider supports it.

How withdrawals are taken from a model portfolio

When you withdraw, the manager sells holdings to raise the cash. In a discretionary model, you do not normally choose which funds are sold. The manager will usually sell across the holdings to keep the remaining portfolio close to its target mix.

If you hold the funds yourself on a platform, you choose what to sell. That gives you control over which gains you realise, which matters for tax outside a wrapper.

Pension drawdown allows you to keep your pension invested and draw out income as and when you wish. You can take out as much as you want, although this money will be subject to income tax¹¹. Usually, any income you withdraw from your pension is subject to tax¹². If you take withdrawals in stages, you can take 25% of every cash withdrawal tax free, with the remaining 75% taxable as income⁴.

The risk with drawdown is running the pot down too fast. Take out too much, too soon and you could run out of money¹². Charges continue on the investments you hold, as well as those levied by your drawdown provider¹¹.

Rebalancing after money goes in or out

Cash flowing in or out of a portfolio can push it away from its target mix. A large deposit adds to every holding, but if the manager buys in the same proportions, the mix stays close to target. A withdrawal works the same way in reverse.

Some providers rebalance after large cash flows; others rebalance on a set schedule. There is no single industry rule on when a rebalance is triggered by a deposit or withdrawal.

Investment companies use a comparable mechanism when they raise new money. C shares are held in a separate pool and invested; after a certain period, or when the pool of new money is fully invested, the two portfolios are merged and the C shares are exchanged for ordinary shares¹³. That structure exists to avoid diluting existing investors when new money comes in.

A portfolio with a greater proportion of bonds and cash will be lower risk, but leaves your money vulnerable to being eroded by inflation². Rebalancing back to target after a withdrawal can mean selling shares to buy bonds, or the reverse, depending on what has moved.

Charges and dealing costs on deposits and withdrawals

You might be charged each time you buy and sell a share, investment trust or exchange-traded fund. Less common are fees for buying and selling traditional funds¹. Those dealing charges apply when a deposit is invested and when a withdrawal is raised.

For some products, exit costs include proportional fees, the bid-mid spread to sell the product, and any explicit costs, charges or other penalties for early exit¹⁴. The same rules list costs or charges relating to a contract for differences, and for derivative-based investments, exchange fees, clearing fees and settlement fees, plus exit penalties depending on the holding period¹⁴.

Costs and charges information for a product is broken into a one-off entry costs figure, a one-off exit costs figure, an ongoing costs figure, a transaction costs figure, and performance fees and carried interests¹⁴. Where a manufacturer pays retail investors a share of its profits, it may calculate its ongoing costs and transaction costs net of that profit share¹⁵.

Ongoing charges continue regardless of whether you add or withdraw money. There will be ongoing charges for managing your investments¹¹. For drawdown, there are also charges for regular reviews of the income taken out, set by HM Revenue and Customs rules¹¹.

Tax wrappers: deposits and withdrawals inside an ISA, SIPP or general account

The wrapper decides the tax treatment, not the model portfolio. ISAs are tax exempt cash, stocks and shares and/or innovative finance accounts under which any income received in the form of interest, dividends or bonuses and any capital gains are exempt from tax³. No tax is chargeable on the account manager, nominee or account investor in respect of interest, dividends, distributions or gains on account investments, and losses are disregarded for capital gains tax purposes¹⁶.

Inside a SIPP, the same principle applies to the investments, but withdrawals are taxed as income. Pension withdrawals are not tax free, and large tax charges can be triggered on withdrawals made in a way that pushes you into a higher band⁴. Any other withdrawals you make will be subject to income tax at your current tax rate⁴.

In a general investment account, there is no wrapper protection. A sale to fund a withdrawal can produce a capital gain. Losses can be offset against the CGT bill, and unused losses can be carried forward against future CGT bills¹⁷. If a company takes over another and issues shares only, you do not pay Capital Gains Tax when you get the shares¹⁸.

Real estate investment trusts pay no tax on their distributions if held in an account such as an ISA or a SIPP⁵. That is one reason the wrapper matters as much as the underlying holdings.

Where delays and out-of-market risk can arise, and where to get help

The main risk on a deposit is being out of the market while cash clears and the manager deals. Funds are priced once a day, so a deposit can sit uninvested for a few days. There is no single industry timescale for how long a deposit takes to be invested, so check the platform's own dealing and settlement terms.

On a withdrawal, the risk is the reverse: you may be out of the market while the sale settles, and you may have to pay exit fees or additional charges to take any money out of your investment early¹. Peer-to-peer platforms are a separate case, where you could face waits of several months to withdraw your money¹⁹.

If a platform or provider fails, the treatment of your money depends on whether it was held as client money and whether the investments are held in your name. Cash held in a client money account is separate from the firm's own money⁷.

For free, impartial help, MoneyHelper offers guidance on pensions and investments, and the Financial Ombudsman Service handles complaints about firms. If you are unsure whether a model portfolio suits your circumstances, independent advisers can use model portfolios, but only once they have considered options outside them, and they should not use just one model portfolio²⁰.