It’s one of the best performing stocks around today. Taiwan Semiconductor Manufacturing Company or TSMC was trading at $104 on January 2, 2024. Today the firm’s stock price has rocketed to $242. However, investors in the UK are not allowed to hold TSMC stock in their Stocks and Shares ISA. Why?
In the UK, His Majesty’s Revenue and Customs (HMRC) states that “American Depositary Receipts and American Depositary Shares only qualify for inclusion in ISAs if the underlying security is a qualifying investment.” TSMC’s primary listing on the Taiwan Stock Exchange (TWSE), which is not recognised by HMRC, disqualifies its NYSE-listed ADRs.
To qualify, underlying shares must be either:
- Officially listed on a recognised stock exchange
- Admitted to trading on a recognised stock exchange in the UK or EU including Norway, Iceland and Liechtenstein.
In the case of TSMC, which is listed on the Taiwanese stock exchange and has a secondary listing on the NYSE, it does not qualify.
Why does HMRC not classify the Taiwan Stock Exchange as a “recognized stock exchange”?
You may not be surprised to know that stocks listed on the Hong Kong Stock Exchange are recognized by the UK tax authorities. Taiwan, a long-standing ally of the UK, has been overlooked in this scenario. This exclusion may frustrate investors, given Taiwan’s strong economic ties with the UK. However, things are never as simple as they might seem.
UK ISA rules are outlined in the Individual Savings Account Regulations 1998. The current limit of £20,000 was first set in the March Budget of 2015 and eventually came into effect in April 2017. The previous limit was £15,240. The objective of this policy was “to increase the flexibility of ISAs for savers, and support those saving for a deposit on their first home in a Help to Buy: ISA.”
The Help to Buy: ISA, which had a separate limit to the main ISA, was discontinued in 2019, but the rest of the policy was left unchanged. These changes and updates can be very time consuming. Just like reviewing the current list of “recognized stock exchanges.”
Some of the potential reasons for HMRC not classifying the Taiwan Stock Exchange (TWSE) as a recognized stock exchange include differences in market structure, reporting standards, or geopolitical considerations. To address this, HMRC would need to assess TWSE’s regulatory equivalence. At this stage, though, the UK Chancellor has had other priorities to tackle with regards to UK ISAs.
While the UK does not formally recognize Taiwan as a sovereign state, HMRC’s exclusion of the TWSE likely stems from regulatory differences, such as market structure or reporting standards, rather than explicit geopolitical motives. Assessing TWSE’s regulatory equivalence would require significant HMRC resources.
In recent years, there has also been a tendency by the People’s Republic of China to put countries that have diplomatic relations with Taiwan under greater pressure to break ties.
What Alternatives to TSMC can be added to your ISA?
Last year AJ Bell and Fidelity Investments both permitted trading in TSMC for customers with ISAs. This error occurred because some platforms misinterpreted HMRC’s rules on ADRs, leading to compliance breaches. Affected investors were notified to transfer TSMC holdings to non-ISA accounts to avoid losing ISA tax benefits.
There are, according to online commentators, some alternatives that are exposed to TSMC that are worth investigating. We listed some of them below:
- HSBC MSCI Taiwan Capped UCITS ETF is exposed to the largest stock market listed companies in Taiwan
- Xtrackers MSCI Taiwan UCITS ETF has a 33.842 percent exposure to TSMC
- iShares MSCI Taiwan UCITS ETF has a 33.45 percent exposure to TSMC
- Amundi MSCI Semiconductors UCITS ETF ACC has a 13.31 percent exposure to TSMC
- VanEck Semiconductor UCITS ETF has a 10.38 percent exposure to TSMC
All the above should be available to UK citizens looking to increase their exposure to TSMC in a Stocks and Shares ISA. Many of them also include members of the AI5 which includes Nvidia, AMD, Broadcom and Microsoft stock, as well as TSMC.
TSMC’s exclusion from ISAs is part of a larger issue. Jensen Huang, CEO of Nvidia, recently appeared on stage with UK Prime Minister Sir Keir Starmer. Huang told attendees at the London Tech Week that “the UK has one of the richest AI communities of anywhere on the planet, the deepest thinkers, the best universities… and the third largest AI capital investment of anywhere in the world.”
Failing to recognize the role that TSMC is playing in the global AI revolution could be a stumbling block for the UK. But, whilst some things are taking too long, others are moving forward. Just last year, HMRC allowed fractional shares to form part of an ISA for the first time.
Perhaps UK retail investors will see more changes in policy in the future.
Author: Andy Samu
Stock prices are taken from leading trading platform TradingView.
The editorial team at #DisruptionBanking has taken all precautions to ensure that no persons or organizations have been adversely affected or offered any sort of financial advice in this article. This article is most definitely not financial advice.
See Also:
Why the Wealthy Are Turning to ISAs for Smart Tax Planning | Disruption Banking
