Tenants deposit treatments

Tenants deposit treatments 

When living on a premise, a tenant may have caused monetary losses and thus the landlord takes a deposit from the tenant in advance to cover the damages done by the tenant. Security deposit, rental deposit, damage deposit, these are some terms with the same sole purpose. Also, the landlord as per his rights can ask for a holding deposit until the paperwork is done to take the property off the market.

Security deposits

The deposit was taken by the landlord with the intent of keeping the damages to the property apart from the typical wear and tear. The amount is later used to cover different costs including the cleaning cost (tenant left the property untidy), broken costs and even can be used to recover rent unpaid.

If the rent is under £50,000, the deposit is capped at five-week and six weeks if the rent is more than £50,000. Deposits for an assured shorthand tenancy taken by the landlord in both Wales and England are secured by the schemes approved by the Government. The schemes offer alternative resolutions to disputes, removing any sort of need to go to court when a dispute comes in front.

In a simple scenario where the landlord has taken the deposit as per the agreement for the duration of the tenancy and there are no damages done during their stay, the landlord is then liable to return the deposit to the tenant. In such cases, the deposit isn’t included in the overall income of the property through rental business and is also not included when taxable profit is calculated.

In scenarios where the property or furniture is damaged or the required cleanliness isn’t maintained as per the agreement, the landlord can use the deposit to cover the cost of damages. The owner cannot just cut the money from the deposit without the consent of the tenant. If the tenant disagrees and the agreement doesn’t establish, the issue will go to arbitration. Also, note that the landlord in such cases must have solid proofs to claim all or part of the deposit.

Also, if the landlord retains the whole or part of the deposit amount, the amount then becomes part of the income of the property rental business. However, keep in mind that the costs incurred by the landlord for valid reasons are taken out when calculating the taxable profit.

Holding deposits

A holding deposit is asked by the landlord from the tenant certainly when the market is buoyant. This deposit is provided by the tenant to make sure that the landlord holds the property for them until the procedure and required paperwork is done. The amount is although not specified but it can’t be more than one week’s rent.

In cases when the agreement isn’t established, the landlord can retain all or parts of the holding deposit amount in order to cover the costs. The retained amount is then considered as a part of the income of the property rental business. The costs of drawing up an agreement are also included in the holding deposit. Also, the landlord has the choice to return the amount to the tenant. If such a thing happens then it is not considered as income of the rental business.

In scenarios where the agreement is met and all paperwork is done, the landlord can return the amount to the tenant which means no tax implications for the landlord. Also, if the deposit is used as a payment on account of rent or as a security, it then becomes the rental income of the business.

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Further information can be found here  Tenancy deposit protection – GOV.UK (www.gov.uk)