Altmann and Webb demand tax loophole is closed

If the individual is a higher rate taxpayer, he can use his tax return to get the additional tax relief due.

This means that if providers claim 20 per cent relief for Scottish customers, they are getting too little tax relief if they pay at 21 per cent and too much if they pay at 19 per cent. 

The signatories argued that the means by which tax relief is paid should not affect the amount of tax relief paid, and that savers should receive this relief automatically, without having to ask HMRC for it.

They said: "This needs a clause in the Finance Bill and utilisation of the system changes that are already underway in HMRC to tackle the devolution problem.

"We are very happy to work the details through with your HMRC colleagues to make sure all savers are treated equally."

A similar solution was proposed by the Low Incomes Tax Reform Group (LITRG), an initiative from the Chartered Institute of Taxation, also a signatory of the letter.

An HMRC spokesperson said: "Pension tax relief is available for those earning below the personal tax allowance schemes using relief at source. Some major pension schemes designed for automatic enrolment use relief at source precisely because it gives access to tax relief for low earners.

"If a scheme is an occupational pension scheme, they have the option of using either relief at source or a net pay arrangement  – they can choose. If they are not an occupational pension scheme, for example if they are a personal pension provider, then they must use relief at source.

"HMRC keeps all its processes under review."