Driving, insurance in UK

Okay, aside from the fact that driving seems to be terrifying over here (I think I hold my breath every time our cab approaches a roundabout), we've recently been offered the opportunity to buy my father-in-law's car for really cheap.  How would that all work?  I'm the only licensed (US) driver of my husband and I, so I'd be the one driving.  How does insurance, registration, etc. work?  Is there a guide somewhere that outlines it all (especially directed toward those driving on a foreign license)?

I know that I can drive on my US license for a year, but that's pretty much where my knowledge ends.  How do I go about getting insurance?  About what does it cost?  If we buy the car, would we need to re-register it in my name, or is it as simple as an exchange of money?  My father-in-law tends to bend the rules and oversimplify to get his way, but I'm not okay with that and want to do everything the right way.  Unfortunately, I have NO idea what I'm doing!  Any help would be very much appreciated!!

Don't know much about the registered, etc, because I bought my car from a dealer and they did all that stuff for me but you won't have any issues being the only licensed driver.  You'll need the MOT certificate and proof of insurance for the tax disc.
Insurance, shop around,like on comparethemarket, etc.  I got my best deal through the post office. There are many insurance companies that will give you insurance on a foreign license, you just have to look.  Try and get your US insurance company to get you a letter of your driving history, that is helpful and will reduce your rate. 

The quick the guide to the legal requirements:

Third-party liability insurance is an absolute requirement, even just to drive the car home, and getting caught without it will result in you being thrown in the Tower of London.   O.K., I'm exaggerating, but the authorities do take this extremely seriously.      So you really need to arrange the insurance as the most important thing first, unless another family member, friend, etc. with insurance will drive it home for you first.    Fire, theft, and comprehensive cover are all optional, at your discretion.

The registration certificate (known by the official designation V5C) has a section which you complete to notify transfer of keeper.  Note that in the U.K. there is no official record of who actually owns the car, like a certificate of title.  The registration merely indicates the "registered keeper," i.e. the person who has day-to-day charge of the car, is considered responsible for licensing it, etc.   You fill in your name and address on the appropriate section, both sign and date it, then send the form to DVLA to register the change.  There's a small green section to complete and retain as your temporary registration until the new document arrives, which can take anything up to several weeks.  If the car is already registered on U.K. plates, there is no charge for the transfer.

If the vehicle is over 3 years old, then you are required to have a current MoT (Ministry of Transport) inspection certificate to use it on the road.  So if there is already a certificate in force, make sure you get it with the car.  If not, then you will need to make an appointment for an inspection at an MoT garage to get a new certificate.   You are allowed to drive to and from such an inspection without the certificate (for the obvious logistical reason), and you may also drive to/from an MoT test with no tax disk, but you are still required to have insurance first.

The only other legal issue is the road tax.  If the car already has a tax disk which has not expired, then you need do nothing until you are nearing that expiry date.  If there is currently no tax, then you will need to apply for a new tax disk and pay the appropriate annual or 6-monthly fee.   You can do that by mail, online, or the quickest way is to just go to the Post Office with your documents.  They normally have the tax disk application forms there.  You will need to show proof of insurance, the MoT certificate (if applicable due to vehicle age), and your registration document (or temporary slip). 

Thank you SO MUCH!  That is incredibly helpful!!  My father-in-law was trying to tell me that he's already got it insured so we don't need it, which I knew didn't sound right.  He's a crook who just wants to sell us his car, I think, haha.  Anyway, thanks a ton for that response, I really appreciate it!!

My father-in-law was trying to tell me that he's already got it insured so we don't need it, which I knew didn't sound right. 

There is a possibility he has insurance on the vehicle for any driver, in which case you would be covered.  But technically, if you are taking charge of the vehicle permanently, then the insurance company would need to know that.

These days it is the vendor's responsibility to notify the DVLA in Swansea about the change of ownership. So you should not be handed the whole V5C registration certificate, but merely the completed tear-off slip.

There is a good reason why the vendor will always want to notify the change of ownership. If they fail to do so they remain liable, for example, for any penalty for failure to tax the car.

Good point there.  I was saying "you" send the document off in the general sense of "you" the buyer and seller collectively, but certainly it is the previous keeper's responsibility to notify in legal terms.  Of course, in practice if the two people are known to each other and trust each other, it really doesn't matter who actually mails the document, so long as the details are on it and both have signed.

But just to clarify one point:  The V5C shows the "registered keeper," which as DVLA points out on the forms is not necessarily the legal owner.  There is no official document in the U.K. to show who actually owns the car at any given moment, something which is rather odd considering that certain legalities (e.g. insurance cover) are dependent upon legal ownership.

I'm so glad "brokensemaphore" asked this question cause I'm considering the same thing.  But somehow in my mind I keep thinking it would be too costly to own this minivan our friends will be needing to sell. 
However, can I just ask this to help me w/my decision?
Ok, so the costs associated w/owning a car would be:
insurance (about how much do you think; just something that would cover the other person?)
tax disk (only if it doesn't have one or is due to expire; about how much?)
the MoT(the van is older than 3yo but when do they need to be renewed; how much?)
petrol (I've seen it at about 91.9 so does that mean 91.9 pence? and about how much does it cost you to fill up?)

Thanks all for any answers.  I hope it helps brokensemaphore too. 

Ok, so the costs associated w/owning a car would be:
insurance (about how much do you think; just something that would cover the other person?)

Insurance is a difficult one - it depends on the size, make and age of your car, how old you are, what driving experience/record you have, whether or not you are considered a 'high risk' driver etc..

I'll give you an example of the third-party insurance quotes my family has had for one of our cars:

Mum and Dad (in their 50's, driving a small 15-year-old car worth £400, 6 years no claims bonus) = £150 per year

Mum and Dad plus little brother (brother is 18, new 'high risk' driver, has had one minor accident, driving less than 1 year, same car as parents drive) = £900 per year

Myself (25, driving 7 years, however due to a stupid mistake last year (getting in the car when slightly over the limit) I lost my licence for a few months):
before losing licence (same car, with parents insured too) = £450 per year
after losing licence (same car, parents and brother insured too - so 2 high risk drivers) = as much as £2,000 per year!!

tax disk (only if it doesn't have one or is due to expire; about how much?)

For cars registered before 1 March 2001:
Tax disk is £120 per year (or £66 per 6 months) for cars with engines smaller than 1549cc or £185 per year (or £101.75 per 6 months) for cars with engines bigger than 1549cc.

For cars registered after 1 March 2001:
depending on fuel type and CO2 emissions, tax disk will be anywhere from £35 to £400 per year (there are different rates for different emissions amounts)

the MoT(the van is older than 3yo but when do they need to be renewed; how much?)

MOT needs to be done every year and the car cannot be driven if it doesn't pass its MOT. Cost is about £55, plus any work that needs to be done for it (e.g. new tyres, replacement of parts etc.).

petrol (I've seen it at about 91.9 so does that mean 91.9 pence? and about how much does it cost you to fill up?)

Petrol is currently between 89.9 pence and 94.9 pence per litre, so about £4.10 to £4.30 per gallon (before the recent decrease in fuel costs, it was more like £5 a gallon). Depending on size of tank, it costs probably between about £40 and £70 to fill up tank (just a guess there. My old car has a 9-gallon tank and costs about £35-40 to fill up.

Insurance really is the proverbial "How long is a piece of string?" question, since premiums can vary drastically between companies for the same details, not to mention the variations already mentioned.

My last renewal was about £160 for the year, and I haven't paid over £200 for years.  That's for the mandatory third-party liability insurance plus fire & theft cover.  But I'm 42, had a U.K. license since age of 17, full no-claim discount, no accidents/convictions, driving older vehicles, and in a rural area in the lowest band for risk. 

Change to a big city, make it a newer car, and add a newly licensed 18-year-old driver these days and you could easily increase that figure tenfold.

For cars registered before 1 March 2001:
Tax disk is £120 per year (or £66 per 6 months) for cars with engines smaller than 1549cc or £185 per year (or £101.75 per 6 months) for cars with engines bigger than 1549cc.

For cars registered after 1 March 2001:
depending on fuel type and CO2 emissions, tax disk will be anywhere from £35 to £400 per year (there are different rates for different emissions amounts)

The current annual license rates are set out here:

http://www.direct.gov.uk/en/Motoring/OwningAVehicle/HowToTaxYourVehicle/DG_10012524

However, be aware that the taxes for all post-2001 vehicles are set to increase over the next couple of years.  See here:

http://www.direct.gov.uk/en/Nl1/Newsroom/Budget2008/DG_073093

MOT needs to be done every year and the car cannot be driven if it doesn't pass its MOT. Cost is about £55, plus any work that needs to be done for it (e.g. new tyres, replacement of parts etc.).

The current official test fee is £50.35 and is the maximum an MoT-approved inspection station is allowed to charge.  They are free to charge a lower amount if they wish, and many do, although there are concerns over whether some are, shall we say, a little "over zealous" in an attempt to get repair work.

On fuel prices, the Automobile Association produces a monthly report:

http://www.theaa.com/motoring_advice/fuel/

  thank you for the explanations and information-that was sooo helpful.  I still have so much to weigh in my decision but this information certainly helps.