This is an interesting opportunity as technically there is no specific limit, however strict criteria must be met for a gift to qualify as a 'normal gift out of income'.

Firstly it has to be normal (in this context normal is referring to the frequency rather than it being an odd or strange gift in some way). There is no need for it to be a monthly gift or given on a specific day every month, but there should be a good level of expectation to the gift, in other words it should not come as a surprise. Another element to the normality criteria is the amount should be consistent or at least linked to something which is consistently covered.   There are further technical points by which a gift can be measured to determine if it qualifies as a normal gift out of income which we won't go into here.

The second criteria to meet is it must be out of income . The idea here is the donor should have sufficient income to make the gift and not be required to dip into savings. A point to watch is that the income left after making the gift should be sufficient for the individual to continue enjoying the same standard of living.

What Kind of gifts could it be?

• An outright cash gift

• Membership fees for gyms, golf clubs, football season tickets etc

• Monthly payments on a leased car

• Contributions to pension schemes

And the list could go on and on, the key is that the gift must meet the criteria of being normal (Think regular, expected and consistent) and made out of income (leaving sufficient income to maintain the same standard of living without the need to use savings and capital).

As we said Stan earns £30,000 per year which more than covers his living expenses he could look to make use of this allowance. Say he covered his daughter's lease payments on her car at £250 per month and his sister's golf club membership at £80 per month what effect would this have on future IHT?

Car payments

£3,000

Golf membership 

£960

Total

£3,960

IHT @ 40%

£1,584

If Stan could continue to make these gifts as a regular pattern and out of his income then over a few years the IHT savings could soon build up. If ever he gets a pay rise it would be worth revisiting this area and seeing what other gifts he could make.

By the few changes made through this series Stan has reduced his future IHT liability by £75,984. Roughly a 20% reduction from the first review.

Based on these few points Stan could continue to reduce future IHT bills by £2,784 each year simply by making use of the annual allowances.