Hi again.GIFT FROM THE MOTHER
Even though your mother in law gave away the house 10 years ago, it will form part of her estate for Inheritance Tax purposes when she dies even though she no longer owns it unless she pays a commercial rent to the owners or moves out. The reason is that she still lives in the property and this is called a gift with reservation of benefit which you can read about here
Even if she moved out or started to pay a market rent, the seven year period would not start until then and so, if she passed away within seven years of one of those two events, the house would still be part of her estate for IHT purposes. If she lives in it until she dies and does not pay a market rent, it will form part of her estate for IHT purposes as I stated in the previous paragraph.GIFT FROM YOUR SISTER IN LAW
Your husband and your sister in law each inherited a share in the property when your brother in law died. The cost for CGT purposes of each of those half-shares is 50% of the value of the property when your brother in law died.
I'm assuming your brother in law left no will. If he had, you could execute a deed of variation to the will within two years of the death to redirect his 50% share of the property to your husband with the agreement of all affected parties but that could have Inheritance Tax implications as it would not be an exempt transfer which the transfer from husband to wife was. However, if his estate was worth less than £325,000, there would be no IHT to pay.
If your sister in law gave away her share of the property to your husband she will be making both a gift for Inheritance Tax purposes and a disposal for Capital Gains Tax purposes. If the property has increased in value since your brother in law died, then your sister in law may have CGT to pay and no cash to pay it with. Not only that but should she die within seven years of making the gift, the value of her share will form part of her estate for IHT purposes.
The first £11,000 of gains made by an individual in any one tax year are tax free so if the property has not increased in value by more than £22,000 since your brother in law dies, there would be no CGT on a transfer of his widow's 50% share to your husband. If your sister in law died within seven years of making the gift but her estate was covered by the IHT exemption which is currently £325,000 there would be no IHT to pay either. Her executors may even be able to claim any unused part of her late husband's IHT exemption if there is any which could potentially double her exemption to £650,000. In short, the only immediate problem could be a CGT liability.
I hope this helps but let me know if you have any further questions.