An overview
The general idea is, a transitional element should be included in your Universal Credit (UC) to ensure that you are not worse off at the point of claiming UC under managed migration.

The transitional element cannot be included if you were claiming legacy benefits as a joint claim and claim UC as a single claimant, or if you claimed legacy benefits as a single claim and claim UC as a joint claimant. Transitional capital and student disregard can still apply.

 

Simplified version

They would take into account the amount you get in current legacy benefits:

• Child Tax Credits (CTC)

• Working Tax Credits (WTC)

• Income-based Jobseekers Allowance (IB-JSA)

• Income-related Employment and Support Allowance (IR-ESA)

• Income Support (IS)

• Housing Benefit (HB)

They would only take into account any benefits that you have a valid claim for at the point of your UC claim starting. 

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If your UC entitlement is the same or more than your legacy amount, UC would not include a transitional element. 
If your UC entitlement is less than your legacy amount, UC would include a transitional element to ensure you are not worse off.

NOTE: This is an oversimplified interpretation of how it is calculated. How DWP calculate the legacy and UC entitlement is more complicated than this and can result in different outcomes. Read on to learn more.  

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Detailed version

The way in which DWP calculate transitional element is set out in law and based on information that HMRC and DWP hold about you. There are also some assumptions made as well.
 

Firstly they would calculate how much your 'total legacy amount' is.

Your total legacy amount is the representative amounts of any benefits you are entitled to and is based on circumstances on the day before your claim for UC starts. 

• Child Tax Credits (CTC)

• Working Tax Credits (WTC)

• Income-based Jobseekers Allowance (IB-JSA)

• Income-related Employment and Support Allowance (IR-ESA)

• Income Support (IS)

• Housing Benefit (HB)

They would only take into account any benefits that you have a valid claim for at the point of your UC claim starting. The calculation would be done to give a monthly sum of total legacy amount. They use the information that HMRC and DWP hold about you based on the day before your UC claim starts. The result may not be necessarily the same amount in which you receive in legacy benefits due to the method and consideration of the benefit cap, even if you are not in receipt of housing benefit. 

Then they would consider how much your 'indicative UC amount' is the amount you would be entitled to based on the day before your claim for UC starts. It is based on some assumptions set out in law. The earned income figure used in this calculation is the same earnings factored into the total legacy amount above. This may not be the same earnings that you have in your first UC monthly assessment period. The information used for this calculation is the same information that is used in calculation of the total legacy amount supplemented by further information and evidence that DWP sees fit.
When working out the UC indicative amount, any Transitional Severe Disability Premium (SDP) element is not factored in. 
The benefit cap would be considered, and an exemption would only be applied if you meet the exemption rules for benefit cap on UC. 

If your UC indicative amount is the same or higher than the total legacy amount, there will be no transitional element included in your payments. 

Example: UC indicative amount is £500. Total legacy amount is £300. Total legacy amount is less than UC indicative amount, therefore no transitional element is included.

EXCEPTION: If you meet the criteria for Transitional Severe Disability Premium (SDP) element, this can be included as a transitional element.
Click here to read more.

 

If your UC indicative amount is lower than your total legacy amount, there will be a transitional element included in your payments.

If your UC indicative amount is more than nil, the transitional element amount would be the difference between the total legacy amount and indicative UC amount.

Example: UC indicative amount is £100. Total legacy amount is £250. The total legacy amount is more than the UC indicative amount, therefore a transitional element is included. The actual amount of transitional element required to bring UC indicative amount up to £200 is £300, therefore a transitional element of £300 is included.

If your UC indicative amount is nil, the transitional element amount will be the amount required to bring UC 

Example: UC indicative amount is £0. Total legacy amount is £200. The total legacy amount is more than the UC indicative amount, therefore a transitional element is included. The actual amount of transitional element required to bring UC indicative amount up to £200 is £300, therefore a transitional element of £300 is included.

EXCEPTION: A transitional element cannot be included if your UC indicative amount was calculated using the benefit cap. 

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Next, your transitional element is factored into your first UC monthly statement as an element within your full entitlement. Your payment takes into consideration your circumstances on the last day of your first monthly assessment period, and a deduction is made for income received during that period. This amount may be different to what you received in legacy benefits, depending on your specific circumstances. It will be different if your actual earnings are different from what was used in the calculation of total legacy amount and indicative UC amount. 

Specific examples of situations this is most likely to happen.

• HMRC usually work out tax credits entitlement taking into account last year's earnings unless the earnings had changed by more than £2,500. This could mean your tax credits are being worked out with earnings that are not reflective of what you are earning now. Your UC claim would be worked out based on real time earnings. 

• People on working tax credits are automatically exempt to the benefit cap. On UC, the equivalent of this would be the exemption to the benefit cap due to earning at least 16 x national minimum wage. Some people on working tax credits do not earn that much, mostly self-employed people. Therefore, their UC indicative amount may have the benefit cap applied to it and the transitional element cannot raise someone's indicative UC amount above the benefit cap. 

• If you were claiming tax credits and self-employed, the total legacy amount and UC indicative amount are calculated using the earnings information that HMRC hold for you. The earnings amount that HMRC hold for you may be quite modest due to the level of expenses that HMRC allows you to report. HMRC also allows for you to 'leave money in the business' and only report the earnings that you take out of the business. Your transitional element will be calculated based on that information. When it comes to your ongoing UC claim, you would be expected to report monthly all the money that comes into the business and the permitted expenses allowed by UC. This could mean that the earnings on your ongoing UC claim are significantly higher than previously, resulting in a much lower UC award. 

• If you are claiming IR-ESA and conducting permitted work, the amount of earnings that IR-ESA are taking into account is nil. Your total legacy amount and indicative UC amount would be calculated based on nil earnings. UC does not have a permitted earnings rule and any earnings above your work allowance will cause a deduction to your ongoing UC payments which could result in a much lower UC award. 

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