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HMRC internal manual

Property Income Manual

Income chargeable: deposits or bonds taken from tennants

Deposits paid by tenants or licensees to landlords will, ordinarily, be receipts of a rental business. Deposits should be recognised in accordance with generally accepted accounting practice, normally by being deferred and matched with the costs of providing the services or carrying out repairs. To the extent that a deposit taken from a tenant or licensee exceeds the relevant costs, and is subsequently refunded, you may accept that it should be excluded from the receipts of the rental business.

Deposits, bonds and similar not refunded at the end of a tenancy should be included as income at that point to the extent that they have not already been recognised.