Offshore bond providers are shifting their focus away from jurisdictions such as the Isle of Man and towards European jurisdictions, Epoch Wealth Management has said.
Last week, Scottish Widows announced it would be closing offshore bond provider, Clerical Medical International (CMI), to new business. Markas Gilmartin, partner at Epoch, said the closure of CMI is part of a wider move by providers to attempt to circumvent complications with discretionary fund management (DFM) brought about by the retail distribution review (RDR). Under the RDR, VAT will be due on the commission paid from DFMs to advisers where DFMs are used to invest in offshore bonds within a jurisdiction such as the Isle of Man, whose regulator, the Financial Supervision Commission (FSC), mirrors the Financial Services Authority's (FSA) retail reforms. However, VAT will not apply to the commission if the bonds used are domiciled in the EU, outside of the RDR's influence, Gilmartin said.
According to Gilmartin, there are other factors drawing providers away from the Isle of Man. "Portability is an issue", he said. "In France and Italy there can be very heavy tax charges if a bond is not an EU bond." He added that EU bonds are subject to Europe-wide rules, and therefore subject to slower and more predictable change than those regulated by the Isle of Man regulator.
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