Isle of Man investment bonds might sound good, but in the EU they’re often not legal and don’t bring the tax perks you expect.
I read an interesting post on Linkedin about the tax advantages of personalised portfolio bonds (PPB) from places like the Isle of Man and the Channel Islands being sold in the EU to EU residents. We have come across many expats here in the Czech Republic and the EU that have been sold such products. So, I disagreed with this post and summarise my opinions as to why I disagree.
Summary:
Insurance bonds and personalised portfolio bonds (PPBs) sold from the Isle of Man and Channel Islands cannot legally be marketed or sold to EU residents without meeting strict EU regulations.
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Before Brexit, these jurisdictions were treated as third countries for financial services, excluded from the EU single market.
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After Brexit, they lost any indirect access they had, and insurers there must now establish a licensed presence in the EU or operate through an EU intermediary to sell legally.
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Without EU licensing, selling products like PPBs directly to EU residents is illegal, despite some expat financial firms continuing to do so, especially in places like the Czech Republic.
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Risks for consumers include lack of EU consumer protections and no actual tax benefits, as such bonds typically fail to meet local definitions of insurance products (no guarantees, no underwritten risks).
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Recommendation: If you have been sold one of these bonds while living in the EU, get a review by a regulated adviser and possibly a local tax expert to avoid hidden financial issues.
Prior to Brexit
The Isle of Man, Jersey, and Guernsey are British Crown Dependencies, not part of the United Kingdom (UK) or the EU. They are neither members nor associate members of the EU and are treated as third countries for financial services under EU law.
Historically, their relationship with the EU was governed by Protocol 3 of the UK’s 1973 Treaty of Accession, which included them in the EU customs union for goods but excluded them from the single market for services, including financial services like insurance based investment products.
Post Brexit
Post-Brexit, Protocol 3 ceased to apply on December 31, 2020, and the Crown Dependencies are no longer part of the EU customs union through the UK. The Isle of Man and Channel Islands do not have automatic access to the EU single market for financial services, including insurance. They are considered third countries, meaning their insurers cannot freely provide services or establish operations in the EU without meeting specific regulatory requirements.
Legality of Selling Insurance Products in the EU
Selling insurance products from the Isle of Man or Channel Islands in the EU is generally not permitted without specific authorizations or compliance with EU regulations. Here’s why:
1 – Lack of Single Market Access:
As third countries, the Isle of Man and Channel Islands do not benefit from the EU passporting regime, which allows insurers based in one EU member state to operate across the EU under a single license.
2 – Post-Brexit, insurers based in these jurisdictions cannot rely on UK-based passporting rights, as was possible for some arrangements pre-Brexit (e.g., Gibraltar insurers).
3 – To sell insurance in the EU, firms from the Isle of Man or Channel Islands would need to:
- Establish a licensed entity in an EU member state, subject to EU regulations like Solvency II.
- Operate through an EU-based intermediary (e.g., a broker or agent) licensed under the IDD.
- Seek equivalence or bilateral agreements, though no such agreements currently exist for insurance between the EU and these jurisdictions.
Practical Barriers
Without a licensed EU presence, Isle of Man or Channel Islands insurers cannot legally solicit business or provide services directly to EU residents. This includes life insurance products like PPBs.
The Channel Islands have explored securing market access to the UK post-Brexit, similar to Gibraltar’s passporting rights for insurance, but no equivalent arrangement exists with the EU.
The Isle of Man and Channel Islands governments have indicated interest in negotiating arrangements to replace Protocol 3 for specific sectors (e.g., fisheries), but there is no evidence of progress for insurance services.
The EU’s engagement with international standards, such as those from the International Association of Insurance Supervisors (IAIS), aims to align global supervisory standards, but this does not grant market access to third-country insurers.
Consumer Purchases Across Borders
EU residents can, in theory, seek out insurance products from non-EU providers (e.g., Isle of Man insurers) under the freedom to receive services, aka Reverse Solicitation, but this is not the same as insurers actively marketing or selling in the EU. Such transactions are rare, as EU regulations discourage non-EU insurers from soliciting business without a license.
EU consumers buying insurance from non-EU providers may face risks, such as lack of recourse to EU consumer protection mechanisms (e.g., ombudsman services).
Specifics for Personalised Portfolio Bonds (PPBs)
PPBs are life insurance or capital redemption policies often used for wealth management, allowing policyholders to select specific assets. They are popular in offshore jurisdictions like the Isle of Man and Channel Islands due to low-tax environments. Though the Czech Financial Office would look straight through them.
The insurer must be licensed in the EU. The product must comply with EU consumer protection and disclosure rules (e.g., IDD requirements). Without EU authorization, marketing PPBs to EU residents is likely illegal under EU financial services law. Yet, many here in the Czech Republic have been sold these products by ‘expat’ financial advice firms.
Tax Advantages
As such unlicensed products do not meet the test in the Czech Republic to be insurance products (ie there are not guarantees and no underwritten risks), there are no tax advantages of such products, despite the marketing listing such benefits.
Summary
If you have been sold such a product and are resident in this country, we would recommend reviewing the contract with a regulated adviser who may also need to work with a local tax adviser to ensure there are no undisclosed gains or income. A review would also need to look at whether maintaining such a policy as an investment vehicle here is really in your best interests.
