Tax Reform in Luxembourg: What Will Change from 2028

From January 1, 2028, Luxembourg will implement a major reform of personal income tax. Presented by Luc Frieden's government, this reform aims to modernize a tax system designed several decades ago in order to adapt it to the country's demographic, social and family changes.

The project is based on a complete overhaul of the current tax classes and is accompanied by several tax and social adjustments, particularly in relation to family situation, pensions and the cost of living.

Why Luxembourg is moving to a single tax class

The Luxembourg tax system currently relies on three tax classes, determined primarily by marital status and household composition. From 2028, these classes will be abolished in favor of a single tax scale, applicable to all taxpayers.

This reform introduces individualized taxation, regardless of whether one is single, married, in a civil partnership or widowed. The stated objective is to strengthen tax stability in the event of a change in personal situation, such as marriage, divorce or the death of a spouse, events that currently trigger an automatic change in tax class.

However, couples married or in civil partnerships before the reform comes into force will benefit from a 25-year transitional period. During this period, they may retain the current class 2 regime if they wish. The switch to the new scale will remain possible at any time, but will be final.

How the tax scale will evolve from 2028

The reform provides for a significant modification of the income tax scale. The tax-exempt income bracket will be doubled, rising from 13,230 euros to 26,650 euros.

This change modifies the tax calculation for a large portion of taxable income. At the same time, an indexation mechanism for the tax scale will be introduced to limit the effects of inflation on the tax burden, by requiring the government to propose adjustments after several index tranches.

The new scale will apply to both residents and cross-border workers taxed in Luxembourg.

What the official simulations of the tax reform show

To illustrate the effects of the future tax scale, the Ministry of Finance has released several indicative simulations, based on typical profiles and specific income levels.

Legal reference framework

The details of the tax reform are contained in the draft law relating to the introduction of a single tax scale, currently undergoing the legislative procedure.

Draft law – 2028 tax reform: https://www.chd.lu/fr/dossier/8676

The tables below contain exclusively the figures communicated by the government at this stage.

Single people

Single parents (tax credit included)

Couples with one child (combined income)

Retired couples

At this stage, the quantified data published by the government regarding retirees remains limited.

The government has confirmed that pensions will be integrated into the future single tax scale, without publishing additional detailed simulations by pension level.

What tax measures are planned for families

The tax reform is accompanied by several measures designed to better take into account the presence of children within households.

A new so-called "early childhood" allowance will be introduced. It will amount to 5,400 euros per year per child under three years old. This allowance aims to take into account the costs related to childcare and the possible reduction in professional activity during the early years.

The single-parent tax credit will be increased to reach 4,008 euros per year. Several tax deduction ceilings will also be revised upward, particularly for loan interest, insurance premiums, housing savings as well as childcare and home help expenses.

Family allowances and social benefits: what's changing before 2028

Some social measures will come into force before the actual tax reform. From 2027, family allowances will be increased with a monthly increase of 45 euros per child, raised to 60 euros for children over 12 years old.

The back-to-school allowance and birth bonus will also be increased. A progressive annual benefit will be introduced for low-income families, with amounts adjusted according to the age of the children.

A new financial assistance program for elderly people will also be implemented. Accessible from age 65, it will be adjusted according to income and will consolidate several existing schemes.

Childcare: what the reform changes for the childcare voucher

The childcare voucher scheme will be adapted to reduce the cost of childcare. The scales will be revised based on household income and billing will be based on hours actually used, rather than on flat rates.

When the tax reform will come into force and how it will be applied

The draft law must be voted on by the end of 2026. The year 2027 will be devoted to administrative adjustments and the implementation of certain social measures. The new single tax scale will apply from January 1, 2028.

The overall cost of all measures is estimated between 850 and 950 million euros per year, according to official projections.

Key takeaways from the Luxembourg tax reform

The tax reform planned in Luxembourg for 2028 introduces a single tax class, individualized taxation and a revised scale, while integrating targeted tax and social measures. It represents a structural evolution of the Luxembourg tax system and reflects a desire to adapt taxation to current economic and social realities.