In brief
On 28 October 2026, the Luxembourg Parliament adopted Draft Law No. 8676 introducing a single tax class for individual taxpayers as from 1 January 2028. The vote marks a key milestone in one of the most significant reforms of Luxembourg personal income taxation in recent decades.
The reform will replace the existing tax classes 1, 1a and 2 with a single tax class, referred to as tax class “U”, reflecting a fundamental shift in the Luxembourg personal income tax system from taxation based on the family unit (also referred to as collective taxation) to taxation at the individual level.
Key takeaways at a glance
- Luxembourg Parliament has adopted Draft Law No. 8676 introducing a single tax class from 1 January 2028.
- The current tax classes 1, 1a and 2 will be replaced by a new single tax class, referred to as tax class “U”.
- Existing married couples and registered partners may remain under the current collective taxation system during a 25-year transitional period.
- The reform includes several accompanying measures aimed at mitigating the impact of the transition towards individual taxation.
A single tax class from 2028
The reform will introduce a new single tax class (tax class U) as from 1 January 2028, replacing the current tax classes 1, 1a and 2.
The reform marks a shift towards individual taxation. The new tax class U will apply to taxpayers currently falling within classes 1 and 1a, as well as to couples marrying, or entering into, a registered partnership from 2028 onwards.
Transitional regime for existing couples
Married couples and registered partners already benefiting from collective taxation (tax class 2) before the reform may remain under the existing system during a 25-year transitional period.
They may also choose for individual taxation under the new regime (tax class U), but this choice will then be definitive and irrevocable going forward.
Accompanying measures
The reform is accompanied by several measures aimed at mitigating the impact of the transition towards individual taxation, including:
- a €5,400 allowance per child under the age of three;
- an increase in the single-parent tax credit;
- higher deduction ceilings for certain special expenses and childcare/domestic costs; and
- an automatic adjustment of the tax scale following four indexations.
Effective date
The new single tax class and related measures will apply from 1 January 2028.
Conclusion
The adoption of the reform marks an important milestone in the transition towards individual taxation in Luxembourg. Its impact will vary depending on each taxpayer’s personal and family circumstances, namely for married couples depending on the allocation of income between spouses or partners.
Authors:
- Julien Treffort, Tax Partner, Personal Tax & Reward at PwC Luxembourg
