Luxury tax: how Ukraine is changing the rules of the game for wealthy pensioners
28 April 17:44
Starting in 2025, a new fiscal rule will come into effect in Ukraine: pensions over UAH 24,000 per month will be taxed. Only the excess over this limit will be taxed, "Komersant Ukrainian" reports, citing Finansist.
This is not just another budgetary decision, but the first attempt to reflect a paradigm shift in social policy: a shift from the principle of “pensions are sacred” to the principle of “fair responsibility.”
At first glance, this applies only to a limited number of people – pensioners with privileged payments: judges, former high-level officials, and security forces. However, there is a deeper change in logic behind the scenes.
In fact, pensions in Ukraine are now divided into a basic (non-taxable) and a “luxury” (taxable) part. This is a kind of analog to the luxury tax that many countries impose on expensive cars, yachts, and real estate. Ukraine is the first to apply this principle to the income of the elderly.
Moreover, the innovation logically fits into the global trend of revising social contracts. In 2023, an attempt to reform the pension system in France led to massive protests. Ukraine is moving more gently: not by raising the retirement age, but by making tax adjustments for those whose pensions are clearly above the average.
It should be noted that the system does not stop at pensions. Thus, the following are subject to taxation:
- bonuses
- compensation payments
- wages and salaries
- other income under labor or civil law contracts.
If a pensioner additionally receives a salary, rental income or dividends, and the total income exceeds UAH 24 thousand, this excess will also be taxed at a rate of 15% or 20%, depending on the amount. At the same time, working pensioners remain subject to the standard personal income tax (18%) and military duty (5%).
On the other hand, many pensioners still enjoy certain fiscal benefits. For example, the possibility of exemption from land tax for some plots.
Norms of free land area:
- up to 0.10 hectares – within the city limits;
- up to 0.12 hectares – for gardening;
- up to 0.10 hectares – for suburban development;
- up to 0.15 hectares – in urban-type settlements;
- up to 0.01 hectares – for garage construction;
- up to 2 hectares – for personal agriculture;
- up to 0.25 hectares for the construction of a residential building in rural areas.
To use the benefit, one must submit an application to the local council and provide documents confirming the right to the benefit, including a pension certificate.
Thus, the state seeks to balance: to take more from those who have a surplus, but to support those who remain at the basic level.
Pensions in Ukraine in 2025: what you need to know
In 2025, Ukraine’s pension system will undergo significant changes aimed at increasing the fairness and sustainability of payments.
Minimum pension and indexation
The minimum pension in 2025 is UAH 2,361 and will remain unchanged until 2028. Pension indexation was scheduled for March 2025, with an expected increase of 10-12%, which averages out to about UAH 322 and should bring the average pension to UAH 5,717.
Requirements to the length of service
In order to retire in 2025, you must have
- at least 32 years of insurance record to retire at age 60;
- from 22 to 32 years of service to start receiving a pension at the age of 63;
- at least 22 years of service to become a pensioner at the age of 65.
The later you retire, the higher the amount of your pension.
Taxation of pensions
Pensions up to UAH 24 thousand per month are not taxed. If the total income (pension plus additional income) exceeds UAH 24 thousand, the excess is taxed at a rate of 15% or 20%, depending on the amount.
Pensioners who continue to work are obliged to pay:
- 18% – personal income tax (PIT);
- 5% – military duty.
Starting from April 1, 2025, automatic recalculation of pensions for working pensioners with at least 24 months of insurance coverage after the previous recalculation was introduced.
Pension reform
Starting from July 1, 2025, a new pension calculation formula will be introduced that takes into account the number of accumulated pension points, which will make the system more transparent and fair. Starting from January 1, 2026, a mandatory funded pension system is planned to be introduced, which provides for payroll deductions to individual pension accounts.
Special pensions
Ukraine is planning to reform the system of special pensions aimed at establishing uniform conditions for the appointment and recalculation of pensions for all categories of citizens, including prosecutors and judges.
Additionally, it is worth noting that Ukraine is guided by the models of the pension systems of the EU countries, in particular Poland and Lithuania, where the funded system has been successfully operating for over 15 years. It is expected that the transition to the funded model will help strengthen the financial sustainability of the state in the long run and reduce the burden on the PAYG pension system.
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