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You will need more than just bank statements. Look at the form FLR(M), it gives examples of what HO expect to see, NHS letters, etc etc.1) As we are living with my sister, can I provided banks statements in joint name from 3 different banks as the utility bills and council tax are under my sisters name.
For the extension, you need to meet the requirement again with submitting the requirement evidence. You do not have to be employed and prove income for the whole 2.5 years.2) Do we need to be constantly working for 2.5 years and need to earn 18,600 every year or can we take a break in first year?
Yes you can claim. Child benefit in YOUR name only (but you must mention wife in form) and child tax credits MUST be claimed in JOINT names with your spouse.3) I have 2 kids (british nationals). I was thinking to apply for child benefits and child tax credit, hope these will not effect visa extension in future.