Underpopulated, Traditional Isle of Man Seeks to Cope : Island of Sanity Attracts Wealthy Seeking Tax Haven

The Isle of Man has a dilemma: Can it go on believing in fairies now that the gnomes are here?

Gnomes--the kind who run banks--are a growing phenomenon on this tiny tax haven between England and Ireland, and the people of Man are torn between the allure of fat bank deposits and the preservation of their ancient culture and identity.

As tax havens go, the Isle of Man is regarded in financial circles as something of a poor cousin. Having come late into the game, it must settle for the crumbs left by the English Channel islands of Guernsey and Jersey.

However, while the Channel Islands are so crowded that there is a 10-year waiting list for residence permits, the 221-square-mile Isle of Man is underpopulated, wide open and charmingly rural. Its landscapes vary from mist-wreathed mountains to secluded glens and beaches, and its 65,000 inhabitants generally are refreshingly unaffected by outside influences.

Easy to Get Permit

To qualify for the island’s tax advantages, an immigrant must get a residence permit, which is instantly obtainable provided he can prove he is self-supporting or has a skill the island needs. He must then persuade the tax authorities in his country of citizenship that the island is his “center of life,” usually done by buying a house and moving the family there.

Finance houses simply set up shop to qualify.

Athol Street, the Wall Street of Douglas, the capital, is lined with banks, insurance firms and stockbrokers’ offices.

Only a 15-minute drive south through woods and pastures, though, is the Fairy Bridge, where the little people are said to hang out. The locals make a point of saying hello as they drive past, believing that otherwise the fairies may take offense and get mischievous.

Andrew Baker, 37, lives in a cottage by the bridge. A free-lance engineer who works in places like Saudi Arabia might not seem the type to believe in fairies. When asked about it, though, Baker produces a tiny pair of exquisitely stitched, pointy-toed boots he says he found under the bridge.

He says he has no idea how they got there, “but just because I haven’t seen the fairies doesn’t stop me believing in them.”

His wife Kay adds: “You’d be amazed how many people have punctures or run out of petrol (gas) when they forget to say hello to the fairies. I know, because they come to us to telephone for help.”

Trappings of Nationhood

At first glance, the Isle of Man looks as though it could get along fine with one good mayor and a sheriff or two. But in fact, it has many of the trappings of a separate country.

It is not a part of the United Kingdom, but a crown dependency, whose head of state is Queen Elizabeth II. It elects its own government and legislature, the 1,000-year-old House of Keys. It has its own postage stamps, coinage, flag, judiciary and unique breed of tailless feline called the Manx cat.

Originally Celtic, the island was conquered by the Vikings in the 9th Century. Scotland took it in 1266, and then a succession of independent lords ruled it for five centuries. The English crown bought it in 1765 to crack down on its lucrative smuggling trade.

Britain takes care of the isle’s defense and foreign affairs. That leaves the islanders to lead a quiet, unhurried life, rather like its cats which, according to local legend, dawdled so long getting to Noah’s Ark that the doors slammed shut on their tails.

Tough Laws, Little Crime

The crime rate is low, partly because the authorities can put troublemakers on a boat to the mainland and partly because Man, unlike Britain, retains hanging as a penalty for murderer. Lesser offenders can be flogged on the buttocks with a birch cane.

Still, front-page news here is someone getting a parking ticket, or suing a neighbor for the return of a ladder.

The Manx like to think of themselves as pugnacious but friendly. “If you can’t make yourself at home, go home,” says the sign at Jean Twist’s seaside hotel.

They joke that their national symbol of three kicking legs means a leg for kicking Scotland, a leg for kicking England and a leg for kicking Ireland. Their character seems to be expressed in their unusual pound note, which looks like paper but in fact consists of long-life plastic, harder to tear apart than a big-city telephone directory.

The Man government has the power to close its roads, allowing it each year to host one of the world’s oldest and most dangerous street motorcycle races. There are no seat belt laws, breath tests or speed limits in the open country.

Low Taxes

More important, it is free to set its own income tax rate, which at 20% is 10% lower than the average British rate. It has no death duties or capital gains tax.

Forty-three banks and 28 insurance companies now operate on the island. Bank deposits have grown almost sixfold since 1978 to more than 2 billion pounds ($2.4 billion) in April.

Man has three times more accountants per capita than Britain. And Albert Gubay, a construction and retailing magnate, is building one of the world’s largest safety deposit box vaults.

Farmers would like Man to become a full partner in the European Common Market so they can get subsidies, but that could jeopardize Man’s tax haven status if the market ever adopts uniform tax rates.

Businessmen are pressing the government to abrogate its customs union with Britain so that it can become a duty-free area and attract more tourists. “This island needs to be run like a business,” Gubay said.

The foreign influx is eagerly sought by the government, which wants 10,000 more residents to stimulate the economy. But the campaign for new residents, says government economist John Webster, will be a “Manxman Come Home” affair, concentrated on island descendants living in the United States, Canada and Australia.

Diluted Manxness

“We oppose the policy of bringing people to Man because of their wealth. It dilutes the Manxness of the island,” says Hazel Hannon, 40-year-old leader of Mec Vannin (Sons of Man), the Manx nationalist movement that wants Man to become a republic.

The Manx often complain that they are overlooked and their history ignored. They say Iceland’s Parliament--the Althing--may be the world’s oldest, but the House of Keys is the oldest in uninterrupted existence.

The Manx are proud of having given women the vote several decades before Britain, and of their standing by values: homosexuality is banned, pubs are closed on Sunday and pornographic movies are forbidden.

And they are proud of their independence. In 1961, Britain tried to make it close down a pirate radio station operating in Manx waters. The Manx refused and threatened to secede from the crown. They won.