As a learner, I would prefer a teacher afford me the most basic of courtesies of being honest as to why he or she would not wish to have me as pupil. If there is nothing sinister underpinning your reasoning, e.g. contravening the Equality Act 2010, and have articulated this clearly and logically then surely you have nothing to worry about.
The best outcome would to be constructive: explain why you cannot teach them and provide them with alternative solutions, such as another possible teacher or changes to their behaviour that would allow you to take them on as a pupil.
In another thread, a teacher was going on about music teachers not being treated seriously as other Professions. To me, you do yourself no favours by acting unprofessionally: one of the core characteristics of a professional is integrity; being honest. Condoning and advocating blatantly lying about lack of spaces and waiting lists is not acting professionally, quite the opposite.
I really don't know where to begin with this except to say that this is stunningly naive view. I know I have not given any details as to why I won't take this student on, (wise on an open forum) but surely it doesn't take much imagination to realise that honesty is not always the best policy. All I can say is that you are thinking like a student here, not as an experienced teacher or professional who works on a one to one basis in their own private studio.
Apart from my postings on this Forum you know absolutely nothing about my professional career or private activities and I should be grateful if you would not be so wildly presumptive about whether or not I am an experienced teacher or deal with clients on a one-to-one basis. You know nothing at all about how I perform in a professional capacity. Your degree of assumption is astonishingly beyond belief and, quite frankly, shameful for one who is supposed to be teacher. Thoroughly disgusting and wholly unprofessional. Vile by every assessment.
You have every right to disagree with my opinion that openly advocating wanton lying about your lack of desire to take on an individual as a pupil. However, by the same token I have every right to state that, by doing so, you are behaving in a manner wholly unworthy of a 'professional', whose standards of conduct is understood in quotidian and formal lexica as including honesty and integrity in practice. Nïave, maybe, but if your only re-course to fielding undesirable prospective students is sink to open and blatant lies then you are no professional. The law is in place already to protect those who have been libelled. Use the Law, don't sink to the level of ne'er do wells.