New Tax Relief Proposed for Parents of Toddlers in Luxembourg

Luxembourg’s sweeping tax reform is taking shape, with the government outlining new benefits for families and confirming its intention to shift all taxpayers to a single tax class by 2028. Finance Minister Gilles Roth detailed the next steps on Tuesday during a meeting of the Chamber of Deputies’ Finance Committee, signalling that the long-awaited overhaul is entering a decisive stage.

The centrepiece remains the introduction of a unified “R scale” tax class. Roth aims to finalise the legislative text before the end of this year and formally present it on 6 January 2026. A vote is expected later in 2026, giving the tax administration a full year to implement the operational changes before the new system takes effect.

A key addition to the reform package is a planned tax deduction for families with children aged 0 to 3. The benefit would apply per child, irrespective of a household’s structure, offering financial relief during early childhood — typically one of the most expensive phases for parents. The exact value of the deduction has not yet been disclosed.

To soften the impact of the system overhaul for lower-income residents, the government also intends to raise the income threshold at which people start paying taxes. Under the current plan, anyone earning €26,000 or less per year would be exempt.

However, political consensus ends there. The reform’s financing — estimated at €800 to €850 million annually — has prompted criticism from several opposition parties. LSAP deputy Yves Cruchten questioned how such a large measure could be introduced without its financial impact reflected in budget forecasts. The Greens’ Sam Tanson echoed concerns, arguing that the government had missed an opportunity to enhance tax fairness, noting that previous calls by Roth for higher levies on top earners were no longer reflected in the proposal.

Contention is also brewing over the decision to freeze certain index tranches, a move expected to save the State around €120 million each year. Opposition lawmakers warned that this step could effectively function as a “hidden tax increase”.

The draft law foresees a transition period in which both the old and new tax systems will coexist. Deputies from various parties have requested more clarity for taxpayers navigating the change. Among their suggestions is a digital tool that would allow residents to calculate their tax burden under both systems, helping them understand which option is more advantageous.

As the government presses ahead, the reform is becoming one of the defining policy debates of the legislative term — balancing promises of simplification and relief for families against questions of fairness and fiscal sustainability.

Read More : Solutions to finance individualised taxation are not unanimous | Chamber of Deputies of the Grand Duchy of Luxembourg

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