LINARI LAW

Major tax reform: Bill introducing a single tax class ‘U’ officially filed

On January 6, 2026, the Luxembourg government formally submitted Bill No. 8676, which provides for the introduction of a single personal income tax class (“Tax Class U”). This reform aims to replace the current tax classes 1, 1a and 2 and constitutes one of the most significant changes to Luxembourg’s personal taxation framework in recent decades.

The bill amends several key legislative texts, including the general tax code, the income tax law and legislation relating to employment and unemployment benefits.

A central political commitment accompanying the reform is that no taxpayer should be adversely affected. In this context, taxpayers currently subject to Tax Class 2, in particular households benefiting from favorable joint taxation due to income disparities, will be entitled to remain under the existing regime for a transitional period of up to 25 years. These taxpayers may opt into Tax Class U at any time, but such an election will be irrevocable. Taxpayers currently in Tax Classes 1 and 1a will automatically be transferred to Tax Class U.

This transitional mechanism is intended in particular to protect single-income households or couples with significant income gaps, while reinforcing taxpayer confidence in the reform. The grace period applicable following divorce or widowhood will also be extended from three to five years. Taxpayers opting to move from joint to individual taxation will be supported by the tax authorities through dedicated guidance tools, including an online tax calculator.

The new tax class is intended to apply as from January 1 2028 tax. The government aims to have the bill debated and adopted by Parliament before the end of 2026, allowing the tax authorities sufficient time to implement the necessary administrative amendments .

Nearly half of the budgetary cost is expected to be offset by a partial non-neutralisation of index bracket adjustments. As a safeguard, the government has committed to proposing corrective legislation should three index brackets be triggered.

In parallel, the government presented a broader “social package” under the banner “Mateneen. Fir all Famill. Fir all Kand.”, designed to support families with children and strengthen social cohesion. This package reflects the government’s stated objective of increasing household purchasing power while reducing the risk of child poverty, without pursuing a specific family model or a pronatalist policy.

This includes increases in child benefits, school start allowances and birth grants, as well as a substantial reform of the childcare service voucher system (“Chèque-service accueil”).

Child benefits will be increased across all age groups, with higher monthly amounts for children aged 12 and over, a reinforced back-to-school allowance and the introduction of a fourth birth grant instalment. These benefits will be indexed and paid automatically. In addition, a targeted financial premium of up to EUR 3,000 will be introduced for low-income households with school-aged children.

The social measures are expected to enter into force on January 1, 2027.

Do not hesitate to contact us for more information on this matter and visit our website and social media.

Photo – Rosc Art

www.rosc-art.com

 

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