Deposit Protection: Which Scheme and How to Comply

If you take a deposit, you have 30 days to protect it in a scheme and serve the paperwork. Miss that and you are writing your tenant a cheque for 1-3x the deposit and, pre-May 2026, you cannot serve a valid Section 21.

"This guide provides general information about UK landlord tax obligations. It is not financial or legal advice. Tax treatment depends on your individual circumstances and may change. Consider consulting a qualified accountant or solicitor for advice specific to your situation."

1. What you must do and by when

Law: Housing Act 2004 ss212-215, Tenant Fees Act 2019.

For any AST in England or Wales where you take a "tenancy deposit" (not a holding deposit):

• Protect the deposit in an authorised scheme within 30 days of receiving it.
• Serve the prescribed information on the tenant (and any relevant person) within the same 30 days.

Miss either step and you are in breach.

Deposit cap (Tenant Fees Act, England only)

• If annual rent is less than GBP 50,000, maximum deposit is 5 weeks' rent.
• If annual rent is GBP 50,000-99,999, maximum deposit is 6 weeks' rent.
• Work out a week's rent as annual rent / 52, then multiply by 5 or 6.
• Take more and the excess is a prohibited payment: tenant can reclaim it and councils can fine you.

2. The schemes and custodial vs insurance

Authorised schemes in England and Wales

• Deposit Protection Service (DPS) -- custodial and insured.
• MyDeposits -- custodial and insured.
• Tenancy Deposit Scheme (TDS) -- custodial and insured.

Custodial vs insured

Custodial:

• Scheme holds the money.
• Free to use.
• You transfer deposit into scheme and get it back at the end when both sides agree.

Insured:

• You hold the money in your account.
• You pay a fee per tenancy (typically GBP 15-25 depending on scheme/volume).
• If you fail to pay what is due at end of tenancy, the scheme pays the tenant and pursues you.

Scotland

Separate approved schemes: SafeDeposits Scotland, Letting Protection Service Scotland (DPS), mydeposits Scotland.

Wales

Same three as England (DPS, MyDeposits, TDS) for assured shorthold tenancies.

3. Prescribed information and end-of-tenancy process

Prescribed information (PI) under Housing Act 2004 + scheme rules

Within 30 days of receiving the deposit you must give tenant (and any relevant person):

• The amount of the deposit.
• The address of the tenancy.
• Landlord's and/or agent's contact details.
• Scheme name, contact details, and how the scheme works.
• The circumstances where you can lawfully make deductions.
• How to apply for the deposit at end of tenancy.
• What happens if there is a dispute and how ADR works.

Most schemes provide a template PI form. Use it, fill it properly, and give the tenant a copy (ideally signed) plus scheme leaflet.

End of tenancy -- headline process

• Agree deductions within 10 days of either side raising return.
• If agreement: scheme repays deposit in line with agreement.
• If dispute: either party can raise a case for Alternative Dispute Resolution (ADR) (free), or they can go to court.
• ADR adjudicator looks at evidence only (tenancy agreement, inventory, photos, invoices) and makes a binding decision on the scheme.

You do not pay ADR fees, but you do need proper check-in inventory, check-out report and rent schedule or you will lose.

4. Penalties for getting it wrong, and the Renters' Rights Act angle

Penalties under ss213-215 Housing Act 2004

• Tenant can apply to court at any time during tenancy or within 6 years after it ends.
• Court must order:
• Return of the deposit (or protect it and serve PI if tenancy ongoing).
• A penalty of 1-3x the deposit.
• The level depends on seriousness and whether this is repeat behaviour; many judges default to 2x for sloppy but not malicious landlords.

Section 21 interaction (for tenancies where S21 still exists)

You cannot serve a valid Section 21 while:

• Deposit is unprotected, or
• PI has not been correctly served.

You must either:

• Protect late and serve PI (still liable to penalty, but can then use S21), or
• Return the deposit in full (or with agreed deductions) and then serve S21.

Renters' Rights Act 2025 changes

• From 1 May 2026 Section 21 is abolished, so the "no valid S21" sanction falls away for most PRS tenancies.
• The deposit cap, 30-day protection duty, PI duty and 1-3x penalty regime remain; Renters' Rights focuses on possession, rent increases, database and ombudsman, not the basic deposit rules.

So even post-abolition, tenants can still sue you for 1-3x per breach if you mishandle deposits.

5. Common mistakes and what forums get wrong

Typical landlord mistakes

Protecting late Protecting on day 45 and thinking "better late than never". The tenant can still claim 1-3x the deposit; late protection does not cure the breach for penalty purposes.

Serving PI late or incompletely Using the scheme certificate alone and not serving the full PI; courts have treated this as non-compliance.

Taking too much deposit Exceeding the 5-week cap on a normal BTL and not refunding the excess when the Tenant Fees Act came in or when renewing. Tenants can reclaim the surplus, and councils can fine for prohibited payments.

Not dealing with changes of landlord Selling a property with an existing tenancy and deposit but not formally assigning the deposit/PI; both old and new landlords can be dragged into claims if the paperwork is messy.

Ignoring "relevant person" If a parent or employer pays the deposit, they are a relevant person; you must serve PI on them too.

Forum myths

"If I protect it late, I am safe from being sued." No. Courts still award 1-3x for late protection or late PI; timely compliance used to be required for S21 and is still relevant for penalty.

"Tenants only get one penalty per tenancy." Case law and commentary show courts can treat each tenancy / renewal / separate breach as a separate claim. Repeated failures across renewals multiply your risk.

"Because Section 21 is going, deposit protection matters less." The loss of S21 makes the 1-3x penalty the main stick. Claims firms already target historic deposit breaches; expect more of that, not less.

"Lodgers and licences do not need deposit protection." The statutory scheme applies to ASTs. If it is genuinely a lodger/licence (you live there, no exclusive possession), the Housing Act 2004 scheme does not bite -- but mis-labelling an AST as a licence will not fool a judge.

The safe pattern for you is:

• Take no more than 5 weeks (or 6 if over GBP 50k rent).
• Protect and serve PI within 30 days -- diarise it as soon as the money lands.
• Use the scheme's own PI template, signed by you and the tenant.
• Keep all proof (emails, signed PI, certificates) for at least 6 years after tenancy end.

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