In brief
On 6 January 2026, the Luxembourg Government released draft Bill n°8676 introducing a single tax class for personal income taxation (Tarif U), representing one of the most significant overhauls of Luxembourg’s personal income tax system in recent decades.
The reform aims to:
- simplify the tax framework;
- modernise personal income taxation; and
- enhance neutrality to better reflect evolving household and family models.
The reform is expected to apply from tax year 2028 and will be accompanied by a long-term transitional regime for couples married or in a registered partnership prior to that date.
In detail
1. Introduction of a single tax class (Tarif U)
From tax year 2028 onwards, the current system based on multiple tax classes (classes 1, 1a and 2) will be abolished and replaced by a single, universal tax class (Tarif U), applicable to all taxpayers irrespective of their marital or partnership status.
The proposed “Tarif U” provides for:
- A tax-free threshold, rising from EUR 13,230 to EUR 26,650.
- A reduced number of tax brackets, contributing to greater simplicity and readability of the tax scale.
- A tax burden that is, on average, lower for a large proportion of taxpayers, based on a strictly individual taxation approach.
2. End of systematic joint taxation
From 1 January 2028, in principle, all taxpayers, including married couples and registered partners, will be taxed on an individual basis under “Tarif U”.
As a result, each spouse or partner will be taxed solely on the income he or she personally earns, irrespective of the income level of the other spouse or partner.
3. Transitional regime for existing couples
Couples who are married or in a registered partnership prior to 1 January 2028 will benefit from an extensive transitional regime of up to 25 years, allowing them to continue to be jointly taxed until the end of the 2052 tax year.
During this transitional period, eligible couples may remain subject to joint taxation based on income splitting, under a dedicated tax schedule referred to as “Tarif T”, thereby preserving the tax treatment applicable prior to the reform. Alternatively, they may opt voluntarily for individual taxation under “Tarif U”.
Such an option is irrevocable: once individual taxation is elected, a return to joint taxation will no longer be possible.
The splitting mechanism allows couples to divide their combined taxable income and, as a result, reduce the overall tax burden of the household, namely for couples with significantly uneven income levels.
The prolonged transitional period reflects the legislator’s intention to safeguard legal certainty and financial predictability for households whose personal, professional and financial arrangements were established under the current tax system, while ensuring a gradual and orderly shift towards individual taxation.
4. Introduction and enhancement of certain tax deductions
In addition to the reform of the tax classes, the draft law introduces targeted tax measures aimed at better reflecting family-related and personal expenses.
In particular, the reform provides for:
- The introduction of a new “early childhood” tax allowance of EUR 5,400 per child, provided that the child is under the age of three at the beginning of the tax year.
- An increase of the deduction ceiling for certain special expenses from EUR 672 to EUR 900.
- An increase of the deduction limit for contributions to home saving schemes, from EUR 672 to EUR 900, and from EUR 1,344 to EUR 1,500 for taxpayers aged between 18 and 40.
- An increase of the flat-rate allowance for domestic help expenses, assistance and care expenses due to dependency, as well as childcare expenses, from EUR 5,400 to EUR 6,000.
- An increase of the single-parent tax credit from EUR 3,504 to EUR 4,008.
- An increase of the allowance for extraordinary expenses for children who are not part of the taxpayer’s household, from EUR 5,424 to EUR 5,928.
Key takeaways
The proposed individual tax reform constitutes a structural transformation of Luxembourg’s personal income tax system. While it is expected to reduce the tax burden for many taxpayers, in particular second earners and individuals currently taxed under class 1, its impact will vary significantly depending on household composition and income distribution.
For couples married or partnered before 2028, the choice between remaining under the transitional joint taxation regime with splitting or opting for individual taxation will require careful analysis, as the decision is irreversible and may have long-term financial implications.
Early assessment and tailored tax modelling will therefore be essential to anticipate the effects of the reform and to support informed decision-making.
