Luxembourg’s Chamber of Deputies has approved a sweeping tax reform that will fundamentally change the way personal income tax is calculated in the Grand Duchy.
From 2028, the long-standing tax classes 1, 1a, and 2 will be replaced by a single tax class, known as class U, which comes with with a dedicated tax scale.
This is one of the most significant changes to Luxembourg’s tax system in decades, as it puts an end to a multi-tiered taxation system that has existed for more than fifty years.
The reform is designed to make tax assessments "neutral" concerning marital status, meaning both residents and cross-border workers will be taxed individually rather than according to their family situation.
The move reflects how Luxembourg society has changed since the collective taxation model was introduced in 1967, a time when marriage was more common and typically only one person in a couple worked. The new approach aims to better account for today’s diverse family structures.
While most political parties have supported the shift towards individualisation, the Alternative Democratic Reform Party (ADR) has opposed the measure, favouring the traditional family model.
Critics from the opposition warn that the reform is not targeted and will predominantly benefit high earners.
They also argue that the state could lose up to €850 million in tax revenue in the first year alone, since the reform is not accompanied by an indexation of the tax scales.
Luxembourg’s current system bases income tax on the taxpayer’s chosen family model, resulting in single people (class 1) paying higher taxes than married couples or those in civil partnerships, even with the same income. This system also excludes couples who are not legally recognised.
From 1 January 2028, all taxpayers currently in classes 1 (single people) and 1a (single parents, widows/widowers, and divorcees) will be automatically moved to the new class U, using a single tax scale starting at a taxable income of €26,650.
Exceptions will be made for recent divorcees and recent widows or widowers, who will benefit from an extended transition period of three to five years after their change in family situation.
Couples currently in class 2 will also be migrated to class U, but after a lengthy 25-year transition period. They may also choose to switch to the new class U earlier if they prefer.
In terms of income, single people currently in class 1 stand to benefit most: the new class U offers a more favourable tax rate, with estimated annual tax savings between €654 and €2,519, depending on taxable income.
Class 1a taxpayers will see a "similar" rate under class U, plus a small additional annual benefit to ease the transition. The government notes that this group has already received important tax breaks in 2025.
Parents should not worry, as tax allowances for children will remain in place, with higher deduction limits for certain expenses. In particular, the single-parent tax credit will rise from €3,504 to €4,008 per year.
Couples who marry or enter a civil partnership after 1 January 2028 will remain in class U and will not benefit from the long-standing class 2 tax advantages.
Each partner will be taxed individually, and will no longer be jointly liable for their partner’s tax debt, ending the collective, and previously solidarity-based, approach.
Couples already in class 2 (married or in a civil partnership before 2028) will be able to keep their existing tax treatment for up to 25 years, including the "splitting" method that can save hundreds of euros per year.
The disadvantage of the new tax class primarily affects couples where one partner earns less than 25% of the total household income (the exact percentage depends on the couple's combined income). Hence, the lengthy transition allows these couples to retain the benefits of class 2 for as long as possible. This protection lasts until the end of 2052.
For couples where both partners have similar incomes, the class U tax scale will generally be more advantageous, and the government expects many existing married couples and civil partners will opt in to individual taxation.
