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In a major shift to the country’s tax policy, Luxembourg’s government unveiled a comprehensive personal tax reform designed to simplify the income tax system, enhance fairness, and boost household purchasing power. The announcement was made by Prime Minister Luc Frieden at a press conference in Luxembourg-Ville, setting the stage for one of the most significant changes to the nation’s tax code in decades.

At the core of the reform is the introduction of a single, universal tax class that will replace the current three-class system (Classes 1, 1a, and 2). Under the plan, all taxpayers will eventually be assessed under one progressive tax scale, known as the “U” class, beginning 1 January 2028. This change aims to modernize Luxembourg’s income tax framework, eliminate disparities tied to marital or family status, and provide a clearer, more equitable system for individuals and families alike.

The transition to the single tax class will be phased in over time, with provisions allowing those currently under joint taxation to retain benefits from their existing tax class for up to 25 years. The government emphasized that the transition is structured to ensure no taxpayer is forced into disadvantageous tax outcomes during the shift.

In addition to the core overhaul of tax classes, the reform package includes a series of measures directly targeted at supporting families and individual taxpayers:

• Increase in tax-free allowance to €26,650 from the current level of €13,230, effectively doubling the income that is exempt from tax.
• New early childhood tax allowance of €5,400 per year per child under age three, regardless of household structure.
• Enhanced single-parent tax credit raised to €4,008.
• Increased allowances for non-household children, loan interest and insurance premium deductions, and childcare/household care costs.

Prime Minister Frieden described the reform as a significant step toward a fairer and more transparent tax regime, asserting that the state should not influence tax liabilities based on family composition. The measures aim to strengthen purchasing power for workers and families while harmonizing the tax system with Luxembourg’s evolving social structure.

Finance Minister Gilles Roth underscored that the unified tax class and associated allowances are designed to benefit a broad cross-section of taxpayers, including singles, couples, pensioners, and parents, depending on income levels and family circumstances.

While the reforms are widely seen as progressive, some stakeholders have raised concerns about fiscal costs and transitional complexities for households with uneven income distributions. The government remains committed to parliamentary approval later in 2026 ahead of the 2028 implementation timeline.