A series of measures announced by the finance minister, Gilles Roth (CSV), in July, have come into force in the new year, in an attempt to put an end to a negative spiral in terms of the effectiveness of public measures against poverty. Photo: Eva Krins/Maison Moderne (archives)

A series of measures announced by the finance minister, Gilles Roth (CSV), in July, have come into force in the new year, in an attempt to put an end to a negative spiral in terms of the effectiveness of public measures against poverty. Photo: Eva Krins/Maison Moderne (archives)

Announced in mid-July, the measures to reduce personal income tax came into force on Wednesday 1 January. Here are some of the changes.

Poverty has never been so high in Luxembourg and social measures have never been so ineffective, according to two end-of-year reports by the European Commission, mainly because of the difficult situation on the housing market and inflation. However, since 1 January 2025, a package of measures has come into force that will change the situation for many individuals.

"I am particularly proud that we have succeeded in substantially reducing the tax burden on households by bringing the personal income tax scale into line with inflation by 6.5 index brackets from 1 January 2024," the finance minister (CSV), stated in mid-July when presenting a package of measures. "With the tax exemption of the unskilled minimum social wage and of single-parent families up to a gross annual salary of more than €50,000, the government is also underlining the importance it attaches to the fight against poverty. A proactive approach to strengthen social cohesion in our country".

By adjusting the personal income tax scale by 2.5 additional index-linked bands, the government has already neutralised 6.5 index-linked bands in the tax rate. It is a substantial reduction in the tax burden for all households, especially those on low incomes. In addition to adjusting the rate to inflation and reviewing the mathematical formula applicable to tax class 1A, the single-parent tax credit (CIM) and the social minimum wage tax credit (CISSM) have been substantially revalued.

Examples

- A family with two children in tax class 2 and a gross annual salary of €75,000 will pay €4,024 in tax in 2025 instead of €4,718 in 2023. This represents a saving of €694 or -14.7% compared with 2023, and €444 or -9.9% compared with 2024.

- The same family with a gross annual salary of €125,000 will pay €16,358 in tax in 2025. In all, they will pay €2,793, or 14.6%, less tax than in 2023, and €1,460, or 8.2%, less tax than in 2024.

- A single person with a gross annual salary of €50,000 will pay €5,208 in tax in 2025 instead of €6,135 in 2023. In other words, €927 or -15.1% less tax than in 2023. Compared with 2024, they will save €502 euros (-8.8%) in tax.

- A single-parent household with a gross annual salary of up to €52,400 and receiving the full MIF will pay no more tax in the 2025 tax year. The same household with a gross annual salary of €50,000 will have a tax credit of €614 in 2025 instead of owing €2,888 in tax in 2023 and €2,179 in 2024.

- Similarly, all people paid the non-qualified minimum social wage, including those in tax class 1, will no longer pay tax from 1 January 2025.

Two other measures

- The increase in the allowance for extraordinary expenses for children not forming part of the household from €4,422 to €5,424 per year and child from 2025,

- and the tax deductibility of all interest on property loans for the acquisition of an existing home, including bridging loans, from the 2024 tax year. According to Luxembourg Inland Revenue (ACD) guidelines, interest is fully deductible the first year based on rental value, with deductions capped at €4,000 for the second year, €3,000 annually for the following five years and €2,000 for the remainder of the mortgage.

Updated 2 January 2025 to clarify the amount of mortgage interest that can be deducted annually

Read the original French-language version of this news report /

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