I thought that even though I entered under European rules, I had stayed long enough to gain Indefinite Leave to Remain,
ILR is for those under UK immigration rules and is nothing to do with EEA Regulations. The EEA regs are nothing to do with UK immigration laws and the EU gives PR not ILR (a DCPR or PRC required for British citizenshp).
You did say before that you had sent off your passport for another UK visa and instead of another visa, your passport came back with an IRL stamp and that you didn't know why you got ILR. We did wonder if that was an error. I don't know what the ILR rules were back then.
We also said that some EEA citizens might have got stamped in ILR before 2000, but you said your wife didn't get that, so it didn’t look like you got ILR that way?
The letter is saying that their records for you show that your permission to be in the UK is via the EEA Regs (your EEA citizen wife sponsor) and they said that you don’t hold ILR and that’s why they are returning your fee for a BRP.
Has your wife sent off for her DCPR? They are telling you to get a PRC (for non-EEA citizens) and you could only get that through your EEA citizen sponsor if she had proof of her PR: usually a DCPR.
I would like to know if I should apply for the EEA permanent residence card that they suggest, or is that the one that will be redundant soon? If I do apply, do I have to send my wife's passport away for some months?
I suppose the first thing to find out is if you really do hold ILR.
Under the recent update for those in the UK using EEA Regulations, that we are talking about on the Advisories board (BREXIT), even those that hold PR will have to register on Brexit as there won't be PR anymore as that is EU rules. That’s about all we know atm. This is why those who can, are getting their DCPR or PRC that they need to apply for citizenship and then applying for citizenship before Brexit.
Also, does this mean that my boy who was born after that stamp is not actually British? We've been waiting to get my BRP before doing the applications for the kids but I am unsure now about their status.
A child born in the UK must have one settled parent to be born British (ILR, The EU’s PR or British citizenship). Different EU Regulations before 2000.
If they don't agree that you had ILR when he was born in the UK, then he won't be born British through you. It’s back to what year your son was born and depending on that, what your wife’s status was in the UK when he was born.
If he isn’t born British then you will have to do the same as your daughter and pay to register him too.
Your PRC will be about £65 but as the EEA Regs stop at the EU’s PR. Even those on EEA Regulations have to pay the full fee to naturalise (for adults) and register (for children) as British citizens.