Luxembourg’s 2028 Tax Reform: What the New Single Tax Class Could Mean for You
Updated: Oct 18
For many single taxpayers and dual-income couples, the proposed system could reduce income tax. For couples with one income or a significant difference between their incomes, however, the existing class 2 system may remain more favourable. The draft therefore includes a long transitional period for qualifying couples already married or in a registered partnership before 2028.
Luxembourg is preparing a fundamental reform of personal income taxation. Under draft Bill 8676, the current tax classes 1, 1a and 2 would be replaced by a single tax class—known as class U—based on individual taxation from the 2028 tax year.
Important status note: As at 13 August 2026, Bill 8676 remains under consideration in the Luxembourg Parliament and has not yet become law. The measures and amounts described below are proposals and may change before adoption.
What is changing?
Luxembourg’s current system assigns taxpayers to class 1, 1a or 2 according to factors including marital and family status. The reform would replace these classes with a single progressive tariff and would generally treat each adult as a separate taxpayer.
Under the proposed rules:
individuals currently in classes 1 and 1a would move automatically to class U from 2028;
people marrying or entering into a registered partnership on or after 1 January 2028 would generally be taxed individually;
each spouse or partner would normally report and pay tax on their own income, after deducting expenses attributable to them;
income from jointly held assets would need to be allocated to the relevant owner or owners; and
couples eligible for the transitional regime could retain collective taxation temporarily or make an irrevocable switch to individual taxation.
The reform is intended to make tax outcomes less dependent on marital status and more predictable when a person marries, separates, divorces or loses a spouse.
The proposed class U tax brackets
The draft introduces a simpler progressive tariff based on adjusted taxable income, not gross salary. The proposed marginal rates are:
Adjusted taxable income | Proposed marginal rate |
Below €26,650 | 0% |
€26,650–€31,500 | 11% |
€31,500–€35,500 | 14% |
€35,500–€39,400 | 19% |
€39,400–€44,400 | 25% |
€44,400–€49,500 | 32% |
€49,500–€117,500 | 39% |
€117,500–€176,200 | 40% |
€176,200–€234,800 | 41% |
Above €234,800 | 42% |
These are marginal rates: reaching a higher bracket does not cause all income to be taxed at that rate. The employment fund surcharge and applicable tax credits also affect the final tax payable.
The government’s explanatory material gives the example of a single taxpayer with adjusted taxable income of €75,000. Under the assumptions used in the draft, the person’s annual income tax would fall from €18,204 to €15,687—a reduction of €2,517, or 13.8%. This is an illustration based on the draft tariff rather than a guarantee of an individual result.
Who is likely to be affected most?
Single taxpayers currently in class 1
This group is expected to receive the clearest benefit from the proposed tariff. The tax-free band would be substantially higher and the new rate structure is more favourable than the existing class 1 tariff across the examples included with the bill.
Taxpayers currently in class 1a
Class 1a would disappear, but the proposed class U tariff is broadly modelled on the current class 1a treatment. The bill’s examples indicate only modest tariff savings for many current class 1a taxpayers. Specific support for single parents would instead be delivered mainly through an enhanced single-parent tax credit.
Dual-income married couples and registered partners
The result depends heavily on how income is divided between the two people. According to the draft’s explanatory material, individual taxation is generally expected to compare favourably where the lower-earning person receives at least around 25% of the couple’s combined adjusted taxable income.
For example, the bill indicates that a couple with combined adjusted taxable income of €100,000, divided 75/25 between the two partners, would pay €22 less under individual taxation than under the comparison used in the draft. As the two incomes become more equal, class U generally becomes more favourable because both people benefit separately from the new progressive tariff.
One-income couples and couples with a large income difference
These taxpayers require particular care. The existing class 2 splitting mechanism can significantly reduce progression where one person earns most or all of the household income.
In one official example, a couple with €100,000 of adjusted taxable income earned entirely by one spouse would pay €10,410 more per year under individual taxation than under the existing collective treatment. The draft therefore allows qualifying pre-2028 couples to retain the transitional collective regime rather than forcing an immediate switch.
These examples show why a decision should be based on a calculation using both partners’ actual income, deductions and expected future circumstances—not on household income alone.
The 25-year transitional regime for existing couples
Couples married or in a qualifying registered partnership before 1 January 2028 may, subject to the detailed residence and eligibility rules, continue using collective taxation through the end of the 2052 tax year.
During this period, an eligible couple could opt for individual taxation under class U. The proposed choice is irrevocable: once the couple moves to individual taxation, it cannot return to the transitional collective regime in a later year.
The decision may therefore involve more than comparing one year’s tax bill. Couples should also consider future changes such as retirement, parental leave, a planned reduction in working hours, a move across the border, the start or sale of a business, and changes in investment or rental income.
Under the current draft, married taxpayers wishing to have the class U tariff reflected in salary withholding from the beginning of 2028 would generally need to submit a joint request by 30 November 2027. The final procedure should be checked once the law and administrative guidance are adopted.
Proposed changes for parents and deductible expenses
The reform is not limited to the tax-class system. Bill 8676 also proposes several targeted changes.
Early-childhood allowance
An allowance of €5,400 per qualifying child would be introduced for taxpayers under class U where the child is under three years old at the beginning of the tax year. Depending on the family situation, the allowance may be shared between the parents or, in certain cases, reallocated where one spouse or partner cannot use their share.
Single-parent tax credit
The maximum single-parent tax credit would increase to €4,008 for adjusted taxable income below €60,000. It would then decrease progressively between €60,000 and €105,000, reaching a minimum of €750 above €105,000, subject to the applicable eligibility conditions.
Insurance premiums and certain interest expenses
The annual deduction ceiling covering qualifying insurance premiums, contributions and certain interest expenses would rise from €672 to €900 per eligible person, with the proposed family-related increases applied according to the new rules.
Home-savings contributions
The proposed maximum deduction for qualifying home-savings contributions would increase:
from €1,344 to €1,500 for eligible taxpayers aged 18 to 40; and
from €672 to €900 in other cases.
The tax benefit of an allowance or deduction depends on the taxpayer’s marginal rate and whether the relevant legal conditions are met. A €5,400 allowance, for example, is not the same as a €5,400 cash payment or tax refund.
What does the reform mean for cross-border workers?
The proposed individual-taxation principle would also affect non-residents with Luxembourg-source income. However, access to the transitional collective regime may depend on residence history, prior collective taxation and continued compliance with Luxembourg’s assimilation conditions.
Cross-border households should review Luxembourg income together with foreign income, ownership of investments and property, and any change of residence. A couple that ceases to meet a transitional condition could lose access to collective taxation, potentially on an irreversible basis under the draft rules.
What should taxpayers do now?
No change to the tax-class system is proposed before the 2028 tax year, and the bill is still being debated. Immediate restructuring based solely on the draft would therefore be premature. Nevertheless, taxpayers can prepare by:
keeping records that clearly identify which spouse or partner earned each item of income and paid each deductible expense;
reviewing ownership of investment accounts, rental property and other income-producing assets;
modelling collective and individual taxation using expected 2028 income rather than only the current year;
considering foreseeable changes in work, residence, family situation or retirement; and
monitoring the final law, application forms and 2027 election deadlines.
For existing couples, the most important point is not to make an irrevocable election without comparing both regimes over a realistic multi-year period.
Frequently asked questions
When is the new Luxembourg single tax class expected to start?
Bill 8676 proposes application from the 2028 tax year. As at 13 August 2026, the bill is still in committee and the start date is therefore not yet legally final.
Will married couples automatically lose class 2 in 2028?
Not necessarily. Couples who qualify for the proposed transitional regime could continue collective taxation through 2052. Couples marrying or registering a partnership from 1 January 2028 would generally fall under individual taxation.
Is class U always better?
No. It is expected to benefit many single taxpayers and couples with relatively balanced incomes. Collective taxation may remain substantially better for some one-income or highly unequal-income couples.
Do the brackets apply to gross salary?
No. The tariff applies to adjusted taxable income after the relevant income calculations, deductible expenses and allowances. Gross salary alone is not sufficient to estimate the final tax.
Conclusion
Luxembourg’s proposed 2028 reform would shift the centre of personal taxation from the household to the individual. The simpler class U tariff may reduce tax for many people, but its effect will vary materially according to income distribution, family circumstances, residence and deductible expenses.
The long transition protects many existing couples, but it also creates an important planning decision. Once the final legislation is available, taxpayers who can choose between collective and individual taxation should compare the two outcomes carefully before making an irreversible election.
This article provides general information based on Bill 8676 and parliamentary materials available on 13 August 2026. It does not constitute personalised tax advice. The bill may be amended before adoption.
Comments