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.
I'm afraid I don't agree. There are some incredibly rude, mean people in the world, and telling someone who's been obnoxious why you don't want to teach them is likely to result in a bad review which could ruin your business. I've had enquiries from people who have been rude and I really don't think saying anything along the lines of "I only teach polite people" is going to go down well!