Following discussion with the main representative bodies of the real estate industry in April 2004, it was widely anticipated that the launch of the new vehicles, to be known in the UK as property investment trusts (Pifs), would materialise in the 2005 budget.

However, it emerged from the pre-Budget report delivered last week that the Treasury will instead publish a discussion paper on the introduction of Pifs in time for next year’s budget.

Nevertheless, the government was keen to stress that it remains committed to new legislation in the area of property investment.

"The government continues to believe that tax reform in this area has the potential to improve the efficiency of the property market,” stated the report.

It went on to add: “While the government will not legislate in 2005, it will report back with a discussion paper by Budget 2005, for further dialogue with industry representatives."

The move has been cautiously welcomed by the property industry, which has praised the government for not attempting to rush through new proposals into law.

“Although progress on REITs is slower than we would have ideally liked, we appreciate that the creation of a workable vehicle is a time-consuming task, and we are encouraged by the Government's commitment to continue its engagement with the industry to develop a well-designed vehicle,” the British Property Federation commented in a statement.

According to initial proposals, the new property funds have been loosely modelled on American Reits, which are exempt from tax on rental income and capital gains, and pay tax on distributed dividends at the taxpayers' own rate.