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Landlord’s guide to government deposit schemes

government deposit schemes

It’s common practice for landlords to take a deposit when a tenant moves into a property to protect themselves against damage caused or unpaid rent. Deposits legally must be placed into a government-backed Tenancy Deposit Protection (TDP) scheme, introduced by the Housing Act 2004.

In this guide, we’ll explain everything you need to know about tenant deposits.


What is a tenancy deposit?

Most landlords request a deposit from tenants to cover unforeseen costs like damage to the property or rent arrears (the latter of which can also be protected by rent guarantee insurance).

The landlord is legally entitled to use the deposit to repair such damage and claim unpaid rent. Landlords cannot use the deposit to pay for damages caused by wear and tear. The tenancy agreement should include a deposit use clause.


Do I have to take a deposit from tenants?

No, but why wouldn’t you? Things can go wrong, even if you know how to find a good tenant. There’s no legal requirement to take a deposit, but not doing so leaves you open to paying for any damage or rent arrears yourself.

Landlords can also offer their tenants the option of taking out an insurance policy instead of paying a deposit. This gives the tenant the benefit of lower upfront costs when moving into a property, and the landlord the benefit of enhanced protection as some policies will cover up to eight weeks of rent (a cash deposit is capped at five weeks). (Please note, this is not a service offered by Alan Boswell Group)


How much deposit should I take from my tenant(s)?

There are rules governing how much deposit landlords can take from tenants, brought in under the Tenant Fees Act 2019. There is no minimum level of deposit you have to take, but it’s important not to exceed the maximum allowed by the law.


What is the maximum amount of deposit a landlord can ask for?

Since 1st June 2019, the maximum deposit landlords in England can ask for is:

  • No more than five weeks’ rent where the annual rent is less than £50,000.
  • No more than six weeks’ rent where the rent is £50,000 or more per year.


What happens if the deposit is too much?

If you ask for more than the maximum allowed deposit, it’s considered a prohibited payment under the Tenant Fees Act. Taking a prohibited payment can result in a fine of up to £5,000, while any further breaches during the following five years can land you a penalty of up to £30,000. In the latter case, authorities also have the option to begin a criminal prosecution and press for an unlimited fine.

What is a reasonable deposit amount?

Ultimately, it’s up to you to decide on a reasonable deposit amount. While nothing is stopping you from asking for the maximum amount, you may find that a higher deposit will put off some prospective tenants. If you have let your property to several tenants, you’ll know how much deposit you may need to retain. If you do, ask for a deposit that is likely to cover any damage or unpaid rent at the end of a tenancy.


How to calculate a reasonable deposit

If you charge less than £50,000 rent per year, you can ensure that your deposit is reasonable (i.e. doesn’t exceed the maximum) by taking the annual rent, dividing it by 52 and then multiplying it by five.

For example:

£14,400 annual rent ÷ 52 weeks x 5 = £1,384.62 deposit

If the annual rent is more than £50,000, you multiply by six instead of five.

For example:

£60,000 annual rent ÷ 52 weeks x 6 = £6,923.08 deposit


What is a tenancy deposit scheme?

The Tenancy Deposit Scheme was introduced by the Housing Act 2004 to ensure that tenants’ deposits were fairly handled by landlords and protected by government backing.

It ensures that if the tenant meets the terms of the tenancy agreement, the entire deposit is returned to them. Similarly, it allows the landlord to use the deposit – where appropriate – to cover the cost of any damage to their property caused by problems with tenants or to pay for any rent arrears. There are also dispute resolution services to ensure a solution is reached quickly.

The deposit cannot be used to pay for reasonable wear and tear.


How does the deposit scheme work?

Landlords can place the deposit in a scheme run by one of these three government backed organisations: the Deposit Protection Service, MyDeposits, or the Tenancy Deposit Scheme.

Each of these three providers offer two types of scheme; custodial or insurance-based.

  • A government custodial tenancy deposit scheme requires a landlord to pay a deposit to a scheme administrator who holds the deposit until the tenancy ends.
  • An insurance-based scheme is where the landlord retains possession of the deposit but secures it by paying a fee and insurance premiums to the scheme administrator.

The tenant’s deposit must be protected within 30 days of receipt by the landlord, and certain ‘prescribed information’ must be provided to the tenant within the same timeframe.

As required by the Housing Act 2004, this information includes:

  • Full details of the scheme used to protect the deposit and how it works.
  • The procedures in the event of a dispute.
  • The amount of deposit paid.
  • Address of the tenanted property and name and address of the landlord.
  • Any circumstances when the landlord may retain all or part of the deposit.
  • How to apply to get the deposit back.


Tenants may ask to pay the deposit in instalments, but landlords do not have to accept this arrangement. If the landlord is happy to allow it, they must still comply with the law and secure the part of the deposit they have received within 30 days.

All three of the deposit schemes will allow you to do so either by:

  • Protecting the full deposit yourself and recouping the money from the tenant as they pay their instalments.
  • Paying any admin charges to the deposit scheme to amend the amount of the deposit protected as you receive it. You should serve new paperwork to the tenant each time you do this.


Do landlords have to use a deposit scheme?

Yes, legally, you must protect the tenant’s deposit in a government-approved scheme.


Who does the deposit scheme apply to?

The government deposit scheme applies to all homes rented on an assured shorthold tenancy (AST).

Initially, only landlords who took a deposit after April 2007 needed to secure it in a protection scheme. However, since the Deregulation Act of 2015, all deposits taken under an AST must be protected.

The deposit does not need to be protected if the tenant is a lodger or has an assured or protected tenancy.


How much is the deposit scheme?

If you use a custodial deposit protection scheme (i.e. you hand over the full deposit), there is no charge.


Do any fees apply to the deposit scheme?

Insured schemes either charge a one-off or monthly fee per deposit. If interest rates are sufficiently high, you could recoup the cost of an insured scheme by putting the deposit in your own savings account.

If you allow your tenant to pay the deposit in instalments, you may have to pay an admin charge each time you add the amount you have received into the scheme.



What is the difference between a holding deposit and a tenancy deposit?

This article has dealt with tenancy deposits, which are paid at the beginning of the rental period and reimbursed (minus any allowable deductions) at the end of the tenancy. Before a tenancy begins, you can ask for a holding deposit. This is normally to demonstrate commitment on the tenant’s part while you do reference checks. You can request up to one week’s rent as a holding deposit. If you ask for more, that will be a prohibited payment, and you could be fined up to £5,000.

If a tenant decides they no longer want to rent the property and they notify you after the ‘deadline for agreement’ has passed, you can retain the holding deposit. You can also keep it if the tenant fails a Right to Rent check or they provide you with false or misleading information. Otherwise, it must be repaid in full. It’s important to note that you can’t have more than one holding deposit simultaneously. You can only accept a second holding deposit after the first has been repaid, or you have legitimate grounds for keeping it under the Tenant Fees Act.


Should a deposit be paid before signing a tenancy agreement?

Only a holding deposit, capped at one week’s rent, can be paid before signing a tenancy agreement. A tenancy deposit can only be paid after the contract has been signed. A holding deposit can cover part of the subsequent tenancy deposit.


What happens if a landlord does not use the deposit scheme?

According to the law, there are legal consequences for failing to protect a deposit. Tenants can check with the three Tenancy Deposit Schemes to see if their deposit has been protected.

There are three main consequences of failing to comply:

  1. The tenant can apply to the county court, which can either order the deposit to be repaid or paid into an authorised scheme (if the tenancy is ongoing). The court can order “statutory compensation” to be paid up to three times the deposit amount within 14 days, plus the deposit itself.
  2. Landlords cannot serve a valid Section 21 notice to start the process of evicting a tenant if the deposit is not protected unless it has been returned to the tenant (with any agreed deductions).
  3. If there are rent arrears, tenants can ask a court to offset their penalty award against the value owed.

If you have forgotten to protect the deposit, it’s best to do so as soon as possible, even though you will still breach the 30-day legislated limit.


How long can a landlord hold a deposit for after a tenant moves out?

If the landlord holds the deposit (i.e. it is protected by an insured scheme), they should pay it back within ten days after a tenant requests it. A tenant can only request a repayment of the deposit after the tenancy ends.

If the deposit is held in a custodial scheme, a tenant can request its return via the scheme. The scheme will then ask the landlord (or agent) if they agree to the request. If they do, the scheme will pay the deposit to the tenant.

If the landlord wishes to make a deduction from a deposit, such as for damage or rent arrears, they should write to the tenant and explain how much they believe they are entitled to and why. If both parties cannot agree on this deduction, the tenant can take the matter to the dispute service operated by the relevant deposit protection scheme.

To help avoid disputes about deposits, we strongly recommend creating a detailed inventory for rental property. If you have detailed evidence with dated photos, it’s easier to prove that any damage has occurred during the tenancy. Regular property inspections will also help you pick up on any problems early.


Can a tenant’s deposit be transferred to another landlord?

Yes, if the property is sold, the deposit can be transferred to the new landlord. If you have an insured scheme, you can ask the scheme operator to update the protection details with those of the new landlord. If you have a custodial scheme, you can ask the scheme to update these details or undertake a deposit transfer into the new landlord’s scheme account. In both situations, the new landlord must serve new prescribed information to the tenant within 30 days.


Who pays the deposit protection fee?

The landlord is always responsible for paying any deposit protection fees.


What Deposit Protection Service shall I choose?

There are pros and cons to using the different authorised schemes. We recommend researching the benefits, costs, and requirements of each.

What are the three tenancy deposit schemes?

You can learn more about the tenancy deposit schemes in England and Wales, Scotland and Northern Ireland from their websites, listed below.

England & Wales


Northern Ireland


Which deposit protection scheme should I choose?

The main deposit protection schemes all offer a similar service, though costs for the insured schemes vary. At times when interest rates are low, it usually makes sense to use one of the custodial deposit schemes. These are free and keep your admin to a minimum. Insurance-based schemes make sense if, by retaining the deposit yourself, you can invest it and earn more money than the fees you pay for the scheme. Fundamentally, you have to balance cost and convenience in a way that suits you.

If you’d like help managing your portfolio or to learn more about different kinds of landlord insurance, please visit our landlord hub.

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