What are the options if the settlor no longer needs the capital from a loan trust?

For adviser use only.

The settlor could gift the rights to some or all of the outstanding loan. These gifts would be CLTs or PETs (depending on whether it is a discretionary loan trust or a bare loan trust) unless they're classed as exempt transfers using the £3,000 yearly exemption. The loan write off would need to be evidenced by a Deed of Gift. The trust fund is held for the beneficiaries and the settlor can’t access these amounts that have been gifted.

Alternatively, the settlor could recall the outstanding loan and gift this to another individual. This would be a PET. In doing this, they would have to be mindful of the fact that there could be a chargeable event gain to consider.