The deposit looks like the easy part of letting: take a few weeks’ rent, hold it, hand it back at the end. It’s exactly where landlords get caught out — and the penalties are some of the harshest in the whole tenancy. Take too much, protect it late, or hand back the wrong amount, and you don’t just lose the argument: you can lose your right to evict and owe the tenant a multiple of the deposit on top.
The deposit isn’t your money. It’s the tenant’s, held in trust, until damage or arrears say otherwise. Treat it that way from day one and you avoid the traps below.
General information, not legal advice. The figures are illustrative examples and the rules differ across England, Wales, Scotland and Northern Ireland — this covers England. Check with a letting professional and confirm the current rules. The framework is the Tenant Fees Act 2019 and gov.uk — Tenancy deposit protection.
How much you can take
Since the Tenant Fees Act 2019, the deposit is capped:
- 5 weeks’ rent where the annual rent is under £50,000, or
- 6 weeks’ rent where the annual rent is £50,000 or more.
On the reference flat we use across the blog — £250,000 purchase, £1,200/month — annual rent is £14,400, so the cap is 5 weeks: £1,200 × 12 ÷ 52 × 5 ≈ £1,385. Take a penny more and the whole excess is an unlawful payment you must repay, and again your Section 21 is blocked until you do.
| Item | On the example (£1,200/month) |
|---|---|
| Annual rent | £14,400 |
| Deposit cap (5 weeks) | ≈ £1,385 |
| Holding deposit cap (1 week) | ≈ £277 |
Protect it within 30 days — this is the one that bites
Within 30 days of receiving the deposit you must:
- Protect it in a government-approved scheme — the DPS, MyDeposits, or the TDS (custodial or insured), and
- Give the tenant the prescribed information and the scheme’s leaflet.
Miss either deadline and the consequences are severe:
- You cannot serve a valid Section 21 notice — the no-fault route to possession is closed until you fix it (and even then it may be too late for that tenancy). This ties directly into why a clean rent ledger and correct notices matter.
- The tenant can take you to court for a penalty of between 1× and 3× the deposit — payable even if there was never a dispute about the money itself.
This isn’t usually bad faith; it’s a landlord banking the money, forgetting the 30-day clock, and discovering the problem only when they try to evict two years later and the court throws the notice out.
Returning it: 10 days once you’ve agreed the amount
At the end of the tenancy:
- Once you and the tenant agree how much comes back, you must repay it within 10 days.
- You can deduct for unpaid rent, unpaid bills, and damage beyond fair wear and tear — but not for the wear that ordinary living causes.
- If you can’t agree, the scheme’s free dispute resolution decides, and the disputed amount stays with the scheme until it does.
“Beyond fair wear and tear” is the whole game. Repainting a wall marked by normal furniture use is wear and tear — no deduction. A burn in the worktop or a hole in a door is damage. If you deduct, you need dated check-in and check-out inventories with photos; without evidence, the adjudicator almost always sides with the tenant.
How to avoid the three expensive mistakes
- Protect on time. Set the 30-day deadline the day the money lands and keep the scheme certificate and proof you served the prescribed information — that certificate is what keeps your Section 21 alive.
- Don’t mix the deposit with your own cash. It’s a liability, not income. In Livra you can record it as such per property so it’s never confused with rent received.
- Document the condition in and out. A dated, photographed inventory at check-in and check-out is what turns “I think it was like that” into a defensible deduction.
What matters
The deposit isn’t income — it’s the tenant’s money you hold in trust, cap at 5 weeks’ rent, protect within 30 days, and return within 10 days of agreeing the figure. The three mistakes that cost real money — over-charging, protecting late, and deducting for fair wear and tear — all disappear when you treat it from day one as what it is: a capped liability with a 30-day clock and a paper trail behind it. Get the protection wrong and the price isn’t just a fine; it’s your ability to regain the property at all.
If you’d rather keep each property’s deposit recorded separately from rent, with its protection date and check-in inventory, and reach the return with everything documented instead of rebuilt from memory, take a look at Livra. And if you’re still working out whether the let pays, the rental yield calculator gives you the number in a minute.