Custom elements are a part of HTML, they can be part of a subset.

Disqualifying custom elements from an HTML subset would be like claiming function declarations can't be in subsets of JavaScript.

That's not really the same... HTML elements are more like keywords than functions.

Not really. To continue the analogy, in HTML doesn't really have keywords, but has syntax in the form of brackets, quotes, =, etc. Tags are like function calls, and the built in tags are like the standard library. Until custom elements you couldn't declare "functions".