4 minGovernment bill: establishing a unified tax class ‘U’ from 2028 onwards
On 6 January 2026, the Luxembourg government published Draft Bill No. 8676. From 2028 onwards, it plans to introduce a unified tax class, known as Class ‘U’, for personal income tax. The objective of this move is to make the system simpler and more neutral depending on family status (single, married or registered partner).
The information contained in this article is intended for Luxembourg residents.
The bill provides for comprehensive reform based on individual taxation and neutrality with regard to civil status. The unified tax class is intended to replace the three tax classes currently in force, with a transitional period allowing married couples and registered partners to continue to benefit from joint taxation according to a scale reflecting the Class 2 tax class for a period of 25 years.
1. Main purpose of the reform
From 1 January 2028, the current personal income tax system in Luxembourg will undergo significant changes:
- The three existing tax classes (Class 1 for singles without children, Class 1a for single parents/retirees/widows/widowers, and Class 2 for married couples and registered partners filing jointly) will be merged into one unified class, known as Class ‘U’.
- The plan is for the system to gradually evolve towards individual taxation.
- All taxpayers will be taxed according to a single scale, regardless of marital status. This means that family status will no longer directly influence one’s tax rate.
The purpose of this reform is to simplify the tax system, make it fairer and ensure one particular family model is not favoured over another (e.g. singles vs couples).
In the event of a change in family status, the tax scale will remain the same, thus ensuring greater predictability and financial stability for taxpayers.
2. What this means in practice
A simpler and more neutral tax scale
From 1 January 2028, new taxpayers, as well as taxpayers currently in Classes 1 and 1a, will be taxed according to this new class,
with the following scale* being applied:
| 0% | for the tax bracket below | — | €26,650 |
| 11% | for the tax bracket between | €26,650 | €31,500 |
| 14% | for the tax bracket between | €31,500 | €35,500 |
| 19% | for the tax bracket between | €35,500 | €39,400 |
| 25% | for the tax bracket between | €39,400 | €44,400 |
| 32% | for the tax bracket between | €44,400 | €49,500 |
| 39% | for the tax bracket between | €49,500 | €117,500 |
| 40% | for the tax bracket between | €117,500 | €176,200 |
| 41% | for the tax bracket between | €176,200 | €234,800 |
| 42% | for the tax bracket above | €234,800 | — |
*Source: The Government of the Grand Duchy of Luxembourg
Transitional regime (former Class 2 taxpayers)
Taxpayers taxed jointly before 1 January 2028 could continue to benefit from the former Class 2 rate for 25 years. During this period, it would be possible to switch to Class ‘U’ at any time, but this would not be reversible. In the event of death or divorce during this period, the former Class 2 rate would be maintained for five years (instead of the current three years).
3. Further measures announced
Increase in the tax-free threshold
The new scale that is applied to Class ‘U’ sees the tax-free threshold almost double from its current amount of €13,230 for Class 1 to €26,650.
This new rate will result in the average rate of tax going down.
The government states that the new tax scale is more favourable for all taxpayers currently in Classes 1 and 1a. The same applies to approximately 85% of taxpayers in Class 2. The Minister of Finance has stated that a simulator will be provided in due course by the Luxembourg Inland Revenue (ACD – Administration des contributions directes) that will enable taxpayers to decide whether to remain in Class 2 or opt for the new regime (making this change would be a non-reversible decision).
Additional measures for families
- An early childhood allowance of €5,400 per child under three will be introduced.
- Contributions to voluntary pension insurance for the benefit of a spouse/partner who has reduced or stopped working will now be able to be deducted as special expenses.
- The single parent tax credit will be increased to €4,800.
- The allowance for children who are not part of the taxpayer’s household will be increased to €5,928.
Increase in deduction ceilings
- The maximum annual deductible amount of debt interest, insurance premiums and contributions will be increased to €900 (up from €672 at present).
- The ceiling for annual payments to home savings contracts will be increased to €1,500 for persons aged between 18 and 40, and to €900 for others (up from €1,344 and €672 respectively at present).
- The lump-sum rebate for household employees, nursing and care expenses, and after-school childcare costs will be increased to €6,000 (up from €5,400).
Introduction of a mechanism for tax scale indexation
There is also a proposal to introduce a mechanism for adjusting the tax scale each time there are three adjustments to the sliding salary scale terms.
4. Expected effects
- The majority of taxpayers are expected to benefit from a reduction in the amount of tax they pay.
- The Ministry of Finance has also published examples with figures
- However, a minority of couples, particularly those where one person earns almost all of the household income, could see their taxes increase compared to the old system.
The bill will follow the normal legislative process, including review by the Council of State, and may be subject to amendments.
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