The DoV is a good idea as it allows you to effectively swap your late mother's NRB of Â£285k for the NRB available in the year of your father's eventual passing. The NRB this year is Â£312k, next year Â£325k, following year Â£350k, so you could in effect gain Â£65k or more of NRB, giving you a tax saving of Â£26,000 - well worth the trouble!
It is important to note that there will be no taper relief on the PET of Â£200k - the IHT will not be reduced if your father dies within 3-7 years of the gift. The gift of the house (200k) is below the NRB and so is not subject to IHT, meaning there is nothing to taper. In fact the PET has the effect of reducing the NRB (by the full 200k)available on the rest of your father's estate, right up until oct 2013 when it falls out of the calculation entirely. Up until that point it must be included in the total of your father's estate when calculating the taxable estate. I can provide a useful pdf explaining the effect of PETs on IHT if that would be of use.
After the DoV, and before any tax planning, the total estate would be 285k+200k+338K-30k=793k. This can be immediately reduced by 6k using the annual gifting allowance for this year and last year, assuming not previously used (and then by a further 3k each year ongoing). Thus the taxable estate would be 787-624=Â£163k this year, 784-650=134k next year, 781-700=81k following year and so on. The IHT bill being approx Â£64k, 53k, 32k respectively.
Whichever route is followed to reduce this, it must be borne in mind that future HMRC changes may reduce the efficacy of the planning.
The best route will depend on your father's requirements for income and the need to protect the estate from the possible costs of long term care. The DGT is the only method that will provide an immediate discount on the estate; however, at a discount rate of 24% (subj to medical) you will need to invest a large amount - approx Â£679k to reduce the estate by Â£163k and therefore avoid IHT altogether; even then HMRC may contest the discount following death, so it may be rather a large chance to take. HMRC have recently contested discounts on the over-90s, although they do recognise DGTs in principle. I can let you have a copy of an article on this point if useful. Most companies will now insist on a medical exam being undertaken before commencement of the DGT.
There are schemes available which use business property relief to place an investment out of the estate in its entirety after 2 years. Some of these invest into an AIM portfolio, some use a lower risk approach; the preferred schemes provide an insurance that the value of the portfolio on death will be no less than the amount invested, thus protecting the investment from market falls. Either way, these would allow you to invest significantly less than through the DGT, and still avoid IHT, provided your father survives 2 years. In order to bring the estate below the joint nrb value in 2 years' time you would only need to invest Â£81,000. Again, I would be happy to provide further info on these schemes by email.
This is of course a complex situation and a combined approach is likely to offer the most appropriate solution.
I hope this info helps
Ian Martin APFS
Independent Financial Advisers