Luxembourgers to pay less tax from 2028

The Luxembourg government has tabled a bill of law which makes substantial changes to the Luxembourg tax system. We explain everything.

On 6 January 2026, the Luxembourg government unveiled a wide-ranging reform package under the slogan «Mateneen. Fir all Famill. Fir all Kand. (Together. For every family. For every child).

On the agenda: a complete overhaul of the tax system, with the introduction of a new tax rate. single tax class from 2028, a reform of the reception service voucher representing 79 million in annual savings for parents, and a substantial increase in family allowances. These measures directly concern Luxembourg residents, as well as the 230,000 or so cross-border workers.

The single tax class: the major change in this reform

Finance Minister Gilles Roth did not hesitate to describe this reform as «paradigm shift». And with good reason: Luxembourg is abandoning a decades-old tax system based on 3 tax classes.

What is the single tax class?

At present, the Luxembourg tax system is based on the class 1 for singles, the class 1a for single parents, widows and the over-65s, and the class 2 for married or civil union couples. This system traditionally favours married couples through the «splitting» mechanism, which divides household income. In plain English: married couples (or those whose civil union is recognised in Luxembourg) pay less tax than other categories of taxpayers.

From 1st January 2028, these three classes will disappear in favour of one a single scale known as the «U class» (or «R» scale). Each adult will now be taxed individually, on the basis of their own income, regardless of their marital status.

In practical terms, two people earning the same salary will pay exactly the same tax, whether they are single, in a couple, married or in a civil partnership. The spouse's income will no longer be taken into account.

Who will be affected by this reform?

The reform will apply differently depending on your situation:

• For new taxpayers from 2028 class: they will automatically be included in the U
• For current class 1 and 1a taxpayers they will automatically move up to class U, which will be more favourable to them
• For newly married or civil union couples from 2028 onwards Individual taxation of each of the spouses will be compulsory
• For couples who were already married or in a civil partnership before 2028 there will be a transitional period of 25 years to move to the new system

The government asserts that 85% of taxpayers will see their tax burden fall under the new system. For the remaining 15%, protection mechanisms are planned.

What is the 25-year transition period for couples?

This is one of the key measures to reassure worried households: couples who married or entered into a civil partnership before 1 January 2028 will be able to retain the benefits of the old system (class 2 with splitting) for 25 years, until 2052.

During this period, they can choose between :

1. Keep the old system continue to benefit from splitting and class 2
2. Or opt for class U and voluntarily switch to individual taxation

Please note: once the choice of U class has been made, it will be irreversible. It will be impossible to go back to the old system.

Another important new feature is that in the event of death or divorce during the transitional period, the former class 2 tariff will continue to apply for the following periods 5 years (compared with 3 years at present). An additional protective measure for difficult life situations.

Concrete benefits for taxpayers

The government has put the cost of this reform at 880 million euros for 2028 1 billion by 2029. A massive investment that will result in significant savings for most households.

Tax breaks: how much will you save?

With the new U, the tax-free band rises to 26,650 euros (compared with the current 13,230 euros for class 1). This spectacular increase in the tax threshold will particularly benefit modest and middle-income earners.

Here are some concrete examples of annual savings calculated by the Ministry of Finance:

For a single person :

• Revenue of 50,000€/year : Savings of 2.600€ (-33% tax)

For a family with 1 child (60/40 income split) :

• Revenue of 50,000€/year : Savings of 2.188€ (-85% tax)
• Revenue of 75,000€/year : Savings of 3.789€ (-49% tax)
• Revenue of 125,000€/year : savings of 5.037€ (-19% tax)

For a single parent (qualifying for tax credit) :

• Income of 40,000€/year: substantial savings thanks to the enhanced tax credit

Gilles Roth says it in no uncertain terms: «No one will lose out from this reform.»

New tax deductions proposed by the government

The reform is accompanied by an upward revision of many deduction limits. Here are the main changes:

• Interest expense and insurance premiums the deduction ceiling is raised from 672€ to 900€
• Home savings (18-40 year olds) the ceiling is raised from 1.344€ to 1.500€
• Building society savings (other cases) the deduction ceiling is raised from 672€ to 900€
• Domestic and childcare expenses the tax allowance is increased from 5.400€ to 6.000€

These increases represent significant additional savings for households, particularly those with children or those repaying mortgages.

At the same time, and from 2026, the annual deductibility limit for the Luxembourg pension savings plan has been raised to 4500€ (Find out more about pension savings in Luxembourg).

More support for single-parent families

Lone parents, who are particularly at risk of poverty, are given special attention in this reform. Visit single-parent tax credit will see a further significant increase:

• Current amount: 3.504€
• New amount: 4.008€ (+504€)

This increase is in addition to the 1.000€ increase already in force in 2025. In just a few years, the single-parent tax credit will have almost doubled.

In addition, the’allowance for children not forming part of the household (in the case of alternating custody, for example) increases from 5.424€ to 5.928€. Practical recognition of blended family situations.

Another new measure: a tax bonus for alternating residence offering a maximum tax credit of 922.50€ per child for parents not benefiting from class 1a.

The new «early childhood» allowance and other family measures

As well as overhauling the scale, the reform introduces new schemes specifically designed to support young parents.

The new allowance of 5.400€ per child under 3 years of age

This is one of the major innovations of this reform: the’«childcare allowance». Each parent will be able to deduct 5.400€ per year per child under 3 years of age of his taxable income.

The aim of this measure is to financially recognise the investment made by parents in their children's early years, when childcare costs are often highest and parents may choose to reduce their working hours.

The age limit of 3 is not insignificant: it corresponds to the time when children can enter early education and benefit from 20 hours of free childcare as part of the multilingual education programme.

Protection of spouses' pension rights

Another important innovation for couples where one of the spouses reduces or stops working to look after children or a dependent person: contributions paid on behalf of a spouse as part of voluntary pension insurance become deductible as special expenses.

This provision preserves the pension rights of people working part-time or inactive. Recognition of domestic and family work, which until now has been insufficiently taken into account by the tax system.

Reform of the childcare-service voucher scheme: 79 million in savings for parents

The second major component of the «Mateneen» package concerns the welcome service voucher (CSA), This scheme allows parents to benefit from reduced rates in crèches, halfway houses, hostels and with parental assistants.

The new billing rules

The reform simplifies and standardises the rules for invoicing education and childcare services with :

• Uniform pricing all education and care services will apply the same prices, with no possible supplements
• Billing by the hour No more fixed fees: you only pay for the hours your child is actually enrolled.
• Monthly flexibility with the possibility of adapting your needs in terms of hours of care each month

The CSA scale will also be adapted with a targeted relief for low-income households Families with an income of 3.5 times or less the social minimum wage will benefit from even more advantageous pricing conditions.

In total, these measures represent 79 million in annual savings for all parents, financed by state compensation paid directly to the childcare facilities.

20 free hours with parental assistants

Until now, the 20 hours of free childcare per week as part of the multilingual education programme only covered crèches and mini-crèches. The reform extends the scheme to parental assistants.

In concrete terms, children aged between 1 and 4 who are looked after by a registered «nanny» will now also benefit from 20 hours of free reception per week, regardless of parental income.

This extension represents a significant step forward for families who prefer this more individualised form of childcare.

The 2030 objective: a place for every child

Over and above the financial aspects, the government is reaffirming a commitment: guarantee a childcare place for every child who needs one by 2030 in an education and care service.

This promise is accompanied by targeted investment in the quality of services and new governance rules to guarantee transparency and ensure that public funds actually benefit children.

A concrete example of savings: A household with a two-year-old child attending an unsubsidised crèche, earning between 2 and 2.5 times the minimum social wage, could save up to 5.064€ per year depending on reception hours.

Increase in family allowances and new grants

The third pillar of the «Mateneen» package concerns the benefits paid by the Fund for the Future of Children (Zukunftskeess). Minister Max Hahn emphasises: «The aim is to enable every child to grow up in the best possible conditions.»

A structural increase in Kannergeld

Luxembourg's family allowances (Kannergeld) will undergo a major overhaul. significant structural increase :

• +45€ per month for children up to the age of 12
• +60€ per month for children over 12

Currently set at 307.35€ per child (amount as at 1 May 2025), family allowances will therefore reach amounts in excess of 350€ per child once this increase comes into force.

To finance this measure, the Children's Future Fund will have a budget of 1.6 billion euros from 2026.

Targeted financial assistance of up to 3.000€ per child

As part of the fight against child poverty, a new targeted financial assistance is created for low-income households with children at school.

This aid can reach up to 3.000€ per child per year. It is specifically aimed at the most modest families to ensure that every child has the resources they need for their education and development.

Automatic indexation of benefits

Several family benefits will now benefit from a automatic indexation, This will ensure that they are adjusted in line with changes in the cost of living:

• Back-to-school allowance increased by 60€ for 6-11 year olds and 90€ for over 12 year olds, then automatically indexed
• Special supplementary allowance (for disabled children): automatic indexation
• Birth bonuses introduction of a 4th tranche and automatic indexation

This indexation protects families against the erosion of purchasing power due to inflation.

What Luxembourg's tax reform means for cross-border commuters

The few 230,000 cross-border workers (French, Belgian and German) are directly affected by these reforms. Here's what's going to change for them:

Tax :

• Cross-border commuters will benefit from the same tax breaks as residents with Class U
• For married cross-border commuters whose spouse works in another country, the reform could be particularly advantageous: the spouse's income will no longer be taken into account when calculating the overall tax rate.
• New deductions (insurance, home savings, childcare costs) also apply to cross-border commuters

Family allowances :

• Cross-border commuters will continue to receive the differential allowance (ADI) if Luxembourg benefits are higher than those in their country of residence.
• The structural increase in the Kannergeld will have an impact on the amount of the differential supplement

On the Hospitality Service Voucher scheme :

• Cross-border commuters can already benefit from the CSA for childcare in approved facilities in Luxembourg
• The new pricing rules and associated savings also apply to them

Important for cross-border commuters: It is advisable to consult a tax adviser to assess the impact of the reform on your personal situation, particularly if you are currently taxed jointly with a spouse working in your country of residence.

Frequently asked questions about Luxembourg's 2028 tax reform