Tax reform in Luxembourg to take effect from 2028

Luxembourg Finance Minister Gilles Roth confirmed in an interview with Luxemburger Wort that the draft law on tax reform will be ready by the end of 2026 and the reform itself will come into force on 1 January 2028. It is about moving to a single tax category for all individuals, regardless of marital status, with the aim of fairer and more modern taxation.

According to the minister, the current system, which is based on a model with separate taxation of spouses' income and gives advantages to single breadwinner families, is outdated and no longer corresponds to the realities of society. "We are no longer living in the 1960s when a woman could not open an account without her husband's consent," he emphasised. Today, the employment rate of the second member of the family exceeds 67% and divorce and unregistered unions are on the rise. This calls for a shift to a personalised approach to taxation.

The new law will leave a transitional period of up to 20 years for 15% of households, mainly couples where one partner earns more than 75% of income. They will be able to temporarily retain the previous tax conditions. The minister admitted that during the transition period incentives will be introduced to motivate taxpayers to switch to the new system voluntarily.

The reform also includes new social and fiscal mechanisms, such as the possibility for one spouse who stays at home to continue making pension contributions so that these years are taken into account in the calculation of the pension. The possibility of a tax deduction for such cases is also discussed.

Regarding inheritance tax, the minister recognised the problem: if a couple is not officially married but have lived together all their lives, inheritance tax of up to 48% may arise. However, he confirmed that there are no plans to introduce inheritance tax for direct descendants.

Speaking about the public debt, Roth explained that the €2.5bn bond offering was planned in advance to cover a possible deficit until the end of 2025. The debt level has risen to 27.2% of GDP, and is approaching the 30% mark. But the minister clarified that this figure was not a "red line", unlike the commitment to maintain the top AAA credit rating.

He ruled out tax increases and cuts in social spending, despite the budget challenges - increased defence spending and the state's participation in raising pension contributions. Instead, the Finance Ministry counts on the growth of revenues from taxation of the financial sector, which accounts for about 25% of the country's GDP.

Roth also announced a new tax incentive: for each month worked beyond the mandatory 40-year pensionable service, a deduction of €750 will be granted from the age of 57. Thus, for example, a taxpayer will be able to reduce the taxable base by €9,000 for 12 additional months of work. A bill on this measure will be submitted to Parliament in the near future. The aim is to incentivise citizens to work longer by bringing the actual retirement age (60 years) closer to the legal retirement age (65 years).