Welcome to the forum
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1) No, it's not possible to do that... you cannot switch from a visitor visa to any other kind of visa from inside the UK. You must apply for and receive the visa before you travel to the UK.
2) No, he must have a valid passport and you must enter his UK passport details on the application. His UK passport is your evidence that he is a British citizen and is therefore eligible to be your sponsor. You must also send a copy of his current, valid UK passport photo page as evidence of his UK citizenship for the visa.
Your husband will need a valid UK passport to fly to the UK anyway, otherwise he will only be stamped in as a US citizen visitor and will not be allowed to rent housing or anything (it's illegal for a landlord to rent to a visitor in the UK and they are legally required to see his UK passport before they can rent to him)..
So, the order you MUST do things is:
- apply for his new UK passport, sending off the US passport
- wait for his new UK passport to be received
- get a copy of the photo page (preferably certified) for your visa evidence
- he flies to the UK to sort out accommodation etc. using his UK passport
- he returns to the US with the accommodation evidence, or sends you the accommodation evidence from the UK
- when you have all your evidence sorted (his UK passport copy, your accommodation evidence, your financial requirement evidence, your relationship evidence), you can apply for your spousal visa in the US.
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