26. Luxembourg's 2028 Tax Reform
The 2028 tax reform represents the most significant change to Luxembourg's tax system in several decades. As Prime Minister Luc Frieden described it, this is a "true paradigm shift" that fundamentally transforms how individuals are taxed in Luxembourg.
Starting 1 January 2028, the three current tax classes (1, 1a, and 2) will merge into a single unified class called Class U. This reform, which will cost the Luxembourg state between €850 and €950 million per year, aims to modernise the tax system, improve fairness among taxpayers, and better reflect today's social realities.
Reform Timeline
Your tax returns for 2025, 2026, and 2027 will still use the current system with three tax classes. The reform only takes effect on January 1, 2028. The first tax return affected will be for the 2028 fiscal year, due in 2029.
End of the three tax class system
The current system
Currently, Luxembourg applies three distinct tax classes:
- Class 1: Single individuals without children (approximately 325,000 taxpayers)
- Class 1a: Single parents, retirees, widows/widowers (approximately 100,000 taxpayers)
- Class 2: Married couples or civil partners with collective taxation (approximately 242,000 taxpayers)
This system, where married couples benefit from preferential tax treatment through "splitting", no longer reflects current demographic realities. Single taxpayers now significantly outnumber couples in Luxembourg.
The new unified system
From 2028, all taxpayers will be taxed under a single class (Class U), modelled on the current Class 1a, which is considered more favourable than Class 1. As the Prime Minister emphasised: "Everyone must be able to choose their family model without the State interfering. The State must remain neutral in this regard."
Major change: The tax exemption threshold doubles, rising from €13,230 to €26,650. This means a significant portion of your income will not be taxed at all.
Who benefits from the reform?
Single individuals (Currently in Class 1)
Single individuals are the biggest winners of this reform. According to official government calculations, here are the annual savings by income level:
| Gross Annual Income | Net Annual Savings |
|---|---|
| €40,000 | +€2,406 |
| €50,000 | +€2,600 |
| €75,000 | +€2,517 |
| €100,000 | +€2,518 |
| €125,000 | +€2,519 |
Source: Official projections from the Luxembourg government, presented by Finance Minister Gilles Roth (January 6, 2026)
This represents approximately €200 more per month in your pocket, regardless of your income level.
Example: Single person earning €50,000
Marie, a single person in Class 1, earns €50,000 gross per year. With the 2028 reform, she will save €2,600 net per year, or approximately €217 more each month. Over 10 years, this represents €26,000 in cumulative savings.
Single parents (Currently in Class 1a)
Single parents also benefit from the reform. On an income of €40,000, you can expect to save €549 per year, rising to €567 at €50,000.
Additionally, the single-parent tax credit (CIM) increases from €3,504 to €4,008 per year.
Example: Single parent with one child
Thomas, a single parent with a 5-year-old child, earns €50,000 per year. With the reform:
- Tax savings: +€567/year
- Increased single-parent tax credit: +€504 (from €3,504 to €4,008)
- Total gain: +€1,071/year
Couples with children (Currently in Class 2)
Approximately 85% of Class 2 households will pay less tax. Here are some examples of savings for a couple with one child:
- Combined income of €50,000: savings of €2,188/year (85% reduction)
- Combined income of €75,000: savings of €3,789/year
- Combined income of €125,000: savings of €5,037/year (19% reduction)
Source: Official projections from the Luxembourg government (January 6, 2026)
Retired couples
For a retired couple with an income of €100,000, the expected savings are €4,160 net per year.
The transitional period for couples
Approximately 15% of couples do not immediately benefit from the reform, particularly those where one spouse earns more than 75% of the household's total income. For these single-income couples or couples with a large income gap, the current "splitting" system in Class 2 remains more advantageous.
The good news: Nobody loses out. These households can retain their current Class 2 tax treatment for 25 years (until 2052). As Finance Minister Gilles Roth clarified: "It will not be in everyone's interest to change tax class immediately."
These couples can switch to the unified class at any time during this period, but this choice will be final and irreversible.
Important condition for the transitional period
Only couples married or in a civil partnership before December 31, 2027 can benefit from this 25-year transitional period. New couples married or entering a civil partnership from 1 January 2028 onwards will automatically be placed in Class U from the start.
New "Early childhood" allowance
The reform introduces a new specific allowance for young children: €5,400 per year (i.e. €450/month) for each child under 3 years old.
This measure acknowledges the financial burden of early childhood and the reality that many parents reduce their working hours during this period.
For separated parents, this allowance is shared between both parents.
The government has budgeted €30 million for this measure in 2028, rising to €40 million in 2029.
Example: Couple with a baby
Sophie and Marc have a baby born in January 2028. Thanks to the new early childhood allowance of €5,400/year and their marginal tax rate of 30%, they will save approximately €1,620 in tax per year during the first 3 years of their child's life.
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Increased deduction limits
Beyond the main changes, several tax deduction limits are being raised:
Insurance and loan interest
The deduction ceiling increases from €672 to €900 per person in the household.
Housing savings plan (Bausparvertrag)
- Up to €1,500/year for individuals aged 18 to 40 (compared to €1,344 currently)
- Up to €900/year for others (compared to €672 currently)
Domestic help, childcare, and dependency costs
The flat-rate allowance increases from €5,400 to €6,000.
Spouse pension contributions
New deduction: You can now deduct contributions to a voluntary pension insurance for a spouse who has reduced or stopped their professional activity.
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Enhanced protection after life changes
Currently, if your spouse passes away or you divorce, you lose your Class 2 status after only 3 years. The reform extends this period to 5 years, giving you more time to adapt financially.
In the long term, with the unified class, these changes will no longer matter: there will be only one class, so your tax situation will remain stable regardless of what happens in your personal life. As Frieden said: "People's tax situations will no longer be influenced by changes in their family circumstances."
Application to cross-border workers
Cross-border workers are explicitly included in this reform. If you work in Luxembourg but reside in Belgium, France, or Germany, the new unified class and all its benefits apply to you as well.
This affects more than 200,000 cross-border commuters who travel to Luxembourg every day.
Example: Single cross-border worker
Jean, a single French cross-border worker in Class 1, earns €50,000 per year in Luxembourg. With the 2028 reform, he will benefit from exactly the same savings as a Luxembourg resident in the same situation: +€2,600 net per year.
Funding the reform
The reform costs between €850 and €950 million per year. Part of the funding comes from freezing the tax scale (i.e. not adjusting it for inflation), equivalent to roughly 4.5 index tranches in 2028 and generating between €450 and €500 million in additional revenue.
From 2028, the government will reintroduce automatic adjustment of the tax scale, triggered after every three index tranches.
Implementation timeline
Bill filing
The bill was filed with the Chamber of Deputies on January 6, 2026.
Vote
The government plans to pass the law before the end of 2026.
Implementation
The year 2027 will be dedicated to technical and administrative implementation.
Entry into force
The tax reform takes effect on January 1, 2028.
Please note: Certain family measures (such as increases in family allowances) will come into force earlier, from January 1, 2027.
Key takeaways
Finance Minister Gilles Roth summed it up simply: "Nobody will pay more tax after the tax reform."
The annual cost of one billion euros reflects a deliberate choice: a more favourable tax scale for everyone, combined with targeted measures for real-life situations: children, housing, insurance, care, and single parenthood. As Frieden described it: "This is a resolutely child-friendly and family-friendly policy."
Summary table of main changes
| Measure | Before 2028 | From 2028 |
|---|---|---|
| Number of tax classes | 3 classes (1, 1a, 2) | 1 unified class (U) |
| Exemption threshold | €13,230 | €26,650 |
| Early childhood allowance | Does not exist | €5,400/year per child < 3 years |
| Single-parent credit (CIM) | €3,504 | €4,008 |
| Insurance & interest | €672 | €900 |
| Housing savings (18-40 years) | €1,344 | €1,500 |
| Domestic help/childcare costs | €5,400 | €6,000 |
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