Succession planning when someone has lost capacity

Succession plans that may have been deferred are now being pursued with fresh urgency, as significant changes to Agricultural Property Relief (APR) and Business Property Relief (BPR) are set to come into force from 6 April 2026.

This urgency is especially acute where vital assets are held by someone who has lost the mental capacity to make decisions. If you’re in this situation, what are your options?

The Court of Protection and powers of attorney

When someone loses the ability to make decisions, the Mental Capacity Act 2005 (the Act) transfers this power to attorneys appointed under a Lasting Power of Attorney (LPA), or to deputies appointed by the Court of Protection.

An LPA is made before a person loses capacity and allows them to choose who will have authority to make decisions on their behalf if they lose mental capacity in the future.

If someone loses mental capacity and doesn’t have an LPA in place, the Court of Protection will need to appoint a deputy to make decisions for them. Anyone over 18 can apply to become a deputy, but the person who has lost capacity can’t choose who they’d like. The decision often falls to family members. It’s also a lengthy process and significantly more expensive than making an LPA.

Crucially, the Act stipulates that any decisions made on behalf of the individual must be in their best interests. While this may sound subjective, it’s actually a structured legal test. Section 4 of the Act provides a checklist that includes requirements to avoid discrimination, consider all relevant circumstances and take into account past and present wishes, beliefs and values.

In practice, this might mean considering previous conversations where the individual expressed a desire to keep the farm within the family, for example.

Tax planning – a case-by-case basis

Historically, the Court of Protection has accepted that inheritance tax (IHT) planning – such as lifetime gifting – can be in the best interests of someone who has lost capacity. In PBC v FMA (2018), the court authorised substantial gifts from an £18m estate to mitigate IHT, based on the individual’s prior wishes and the benefit to her intended heirs.

However, the court stressed that such decisions must be case-specific. A clear rationale must be presented, supported by evidence that the proposed action aligns with the individual’s values and long-term interests.

If an attorney applies to make gifts during the landowner or farmer’s lifetime to mitigate the IHT due on their estate, we would proceed with cautious optimism that the Court of Protection would approve the gifts – provided the individual’s wishes were to pass the family farm on to the next generation and sufficient funds remained in the estate to meet their needs.

Such cases would be test cases and the decision may rest on the evidence the family can produce about the farmer or landowner’s intention to retain the family farm for future generations.

The court will look for clear, consistent indicators of the individual’s intentions. This might include previous wills, letters or written statements, records of conversations with family or advisers and patterns of past behaviour, such as earlier gifts. Professional advice received before capacity was lost can also help demonstrate that the proposed action reflects the individual’s wishes.

Planning for loss of capacity

While the loss of mental capacity often comes as a shock, it’s increasingly common to factor such an eventuality into succession planning. We recommend:

• Reviewing your assets and identifying which are eligible for APR or BPR
• Exploring gifting strategies as early as possible, particularly ahead of the April 2026 changes
• Ensuring LPAs and wills are up to date and robust
• Documenting your wishes clearly to guide future decision-makers.

If the last year has taught us anything, it’s that the earlier you have important conversations and set plans in motion, the better prepared you’ll be for whatever lies ahead.