A semiconductor device is made by forming an integrated passive device (IPD) structure on a substrate, mounting first and second electrical devices to a first surface of the IPD structure, depositing encapsulant over the first and second electrical devices and IPD structure, forming a shielding layer over the encapsulant, and electrically connecting the shielding layer to a conductive channel in the IPD structure. The conductive channel is connected to ground potential to isolate the first and second electrical devices from external interference. A recess can be formed in the encapsulant material between the first and second electrical devices. The shielding layer extends into the recess. An interconnect structure is formed on a second surface of the IPD structure. The interconnect structure is electrically connected to the first and second electrical devices and IPD structure. A shielding cage can be formed over the first electrical device prior to depositing encapsulant.