How to Handle Tenant Deposits Correctly in England

Getting tenant deposits wrong is one of the most common and costly mistakes landlords make in England. If you fail to protect a deposit in a government-approved scheme within 30 days of receiving it, or fail to provide the required prescribed information, you cannot serve a valid Section 21 notice and may be ordered to pay compensation of up to three times the deposit amount.

This guide covers every step of the deposit process: how much you can take, which schemes to use, what information you must provide, and how to handle deductions at the end of a tenancy.

How Much Can You Charge?

Since the Tenant Fees Act 2019 came into force, deposits for assured shorthold tenancies in England are capped at five weeks' rent where the annual rent is below £50,000, or six weeks' rent where the annual rent is £50,000 or above.

For example, if the monthly rent is £1,000, the maximum deposit you can take is £1,153.85 (calculated as £1,000 x 12 / 52 x 5). Taking more than the permitted amount is a breach of the Tenant Fees Act and can result in a fine.

The Three Government-Approved Schemes

Every tenant deposit taken for an assured shorthold tenancy in England must be protected in one of three government-approved tenancy deposit protection (TDP) schemes:

• Deposit Protection Service (DPS): A custodial (free) scheme where the DPS holds the deposit money
• MyDeposits: Offers both custodial (free) and insured (paid) options
• Tenancy Deposit Scheme (TDS): Offers both custodial (free) and insured (paid) options

Custodial vs Insured

In a custodial scheme, you pay the deposit money to the scheme, which holds it for the duration of the tenancy. This is free but means you do not have access to the money during the tenancy.

In an insured scheme, you keep the deposit money yourself but pay an annual fee to the scheme (typically £20-30 per deposit). The scheme provides insurance to the tenant, guaranteeing the deposit will be returned or disputed through the scheme's process. Many landlords prefer insured schemes because they retain the deposit funds.

The 30-Day Deadline

You must protect the deposit within 30 days of receiving it. This is 30 calendar days, not working days. The clock starts from the date you receive the money, not the tenancy start date. If the tenant pays the deposit a week before moving in, you have 30 days from the payment date.

You must also serve the prescribed information on the tenant within the same 30-day period. Missing this deadline, even by one day, can have serious consequences.

Prescribed Information

Within 30 days of receiving the deposit, you must provide the tenant with specific prescribed information in writing. This includes:

• The name, address, and contact details of the landlord
• The name, address, and contact details of the tenant
• The address of the rental property
• The amount of the deposit
• Which TDP scheme the deposit is protected with, including the scheme's contact details and dispute resolution process
• The situations in which you may make deductions from the deposit
• How the tenant can apply to get the deposit back at the end of the tenancy

Each TDP scheme provides template prescribed information documents that you can use. Ensure every named tenant signs to confirm they have received the information.

Consequences of Not Protecting the Deposit

The penalties for failing to protect a deposit correctly are severe:

• Cannot serve Section 21 notice: You cannot use the no-fault eviction process until the deposit is properly protected and prescribed information served
• Compensation claims: The tenant can apply to the county court for compensation of between one and three times the deposit amount
• Applies to renewals: If the tenancy becomes periodic (rolls over after the fixed term), the deposit must still be protected. Any lapse in protection resets the compliance clock

Making Deductions at the End of a Tenancy

You can make deductions from the deposit for unpaid rent, damage beyond fair wear and tear, cleaning costs if the property is returned in a significantly worse condition than it was let, and replacement of missing items in furnished lets.

Key principles for making fair deductions:

• Use an inventory: A detailed inventory with photographs at the start of the tenancy is essential evidence. Without it, proving damage is very difficult
• Allow for fair wear and tear: Carpets wear out over time, walls need repainting periodically. You cannot charge tenants for normal deterioration
• Provide evidence: Photographs, receipts, and invoices for cleaning or repairs strengthen your case
• Be reasonable: If a five-year-old carpet is stained, you cannot charge the full cost of a brand-new carpet. Deductions should reflect the remaining useful life of the item

The Dispute Resolution Process

If the tenant disagrees with your proposed deductions, either party can refer the dispute to the TDP scheme's free Alternative Dispute Resolution (ADR) service. An independent adjudicator reviews the evidence from both sides and makes a binding decision on how the deposit should be split.

To give yourself the best chance in a dispute, maintain thorough records throughout the tenancy. LandlordGuru's tenant management features help you track tenancy details, store inventory documents, and manage the entire deposit lifecycle digitally.

Practical Checklist

1. Calculate the maximum deposit (five weeks' rent for most tenancies)
2. Choose a TDP scheme and register
3. Protect the deposit within 30 days of receipt
4. Serve prescribed information within the same 30 days
5. Get the tenant to sign confirmation of receipt
6. Create a detailed inventory with photographs before the tenant moves in
7. At the end of tenancy, conduct a check-out inspection and compare against the inventory
8. Agree deductions with the tenant, or use the ADR process if you cannot agree
9. Return the deposit (or the balance after agreed deductions) within 10 days of agreement

For more on tenant management and your legal obligations, see our Right to Rent guide and the first-time landlord checklist.