The Luxembourg government presented its tax reform on Tuesday, centering on the abolition of the existing three tax classes in favour of a single, universal scale.
Prime Minister Luc Frieden described the move as the government “starting the year with a bang”, highlighting its significance as one of the most anticipated reforms of the legislative term. The current system – comprising tax classes 1, 1a, and 2 – will be replaced by a new, unified “U” class.
Officials tout the new structure as “simpler” and “more transparent”, designed to address perceived inequities where single individuals are taxed more heavily than couples under the current regime.
However, the reform introduces a disadvantage for a minority of couples – estimated by the government at fewer than 15% – particularly those where one spouse earns all or the vast majority (over 75%) of the household income. For these taxpayers, shifting to the single scale could be less favourable.
To mitigate this impact, the reform includes a 25-year transition period, lasting until 2052. “No one should lose out”, reiterated Finance Minister Gilles Roth, while cautioning that “it won’t be in everyone’s interest to change tax class straight away.” The transition to the new “U” class, once made, will be permanent.
A core principle of the reform, according to Prime Minister Frieden, is that “People’s tax situation will no longer be influenced when their family situation changes.” He acknowledged the current model is seen as unequal and discriminatory towards single people.
To ease this transition, the period for changing tax class following life events like divorce or death will be extended to five years within the broader 25-year buffer period. Ultimately, however, such changes will become obsolete as only one tax class exists. “We are adapting to the evolution of society”, Frieden stated, noting that single taxpayers now significantly outnumber couples in Luxembourg. “Everyone should be able to choose their family model without the state getting involved. The state must be neutral in this regard”, the Prime Minister said.
The new single class will double the tax-free threshold to €26,650, compared to the current €13,230 for tax class 1.
Minister Roth estimated that, from 2028, the reform will result in tax reductions for couples, pensioners, and single people, sometimes amounting to hundreds of euros annually compared to 2025 levels. The government provided the following estimated net annual increases for select scenarios:
| €40,000 gross per annum | €50,000 gross per annum | €75,000 gross per annum | €100,000 gross per annum | €125,000 gross per annum | |
| Single person | +€2,406 net per annum | +€2,600 net per annum | +€2,517 net per annum | +€2,518 net per annum | +€2,519 net per annum |
| Single parent (incl. tax credit) | +€549 per annum | +€567 per annum | +€370 per annum | +€91 per annum | +€34 per annum |
| Couple with one child | / | +€2,188 net per annum | +€3,789 net per annum | / | +€5,037 net per annum |
| Retired couple | / | / | / | +€4,160 net per annum | / |
Note: The government’s published estimates are incomplete. Boxes marked with "/" indicate scenarios for which no specific projection was provided in the presented materials.
The reform carries a substantial annual fiscal cost, estimated to impact the state budget by €850 to €950 million. A key budgetary mechanism will be the non-adjustment of the tax scale for 2.5 past wage indexations, as well as for indexations scheduled until 2028.
Despite the cost, Prime Minister Frieden emphasised the goal: “We would like net income to be increased and for families to live better.” The government has incorporated specific adaptations for parents, including a new “young child” tax allowance of €5,400 annually (€450 per month) for children up to three years old. This allowance will be shared between separated parents. Additionally, the single-parent tax credit will rise to €4,008 from the current €3,504.
Several other tax deductions will be increased:
The political reaction has been mixed. While most opposition parties welcome the end of the perceived inequality between singles and couples, they criticise the reform’s high cost and the absence of announced financial countermeasures. The Alternative Democratic Reform Party (ADR) stands apart, strongly criticising what it calls a “societal” change that undermines the family’s importance in the tax model.
This major reform remains open to adjustments. It is scheduled for a parliamentary vote by the end of 2026, with implementation set for 1 January 2028, giving the tax administration a year to adapt.
