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Simple solution would be to say to them that you want to extend your house to the brick shed which sits entirely on your property. In return for not going down the legal dispute route (assuming you are spending a fair bit on the extension) offer to buy them a shed to be erected in their garden...

Not sure this reads right! Do you mean that they have a section of your stone shed in their Garden that you want to extend to your house. Why do they think they have flying freehold? Does any part of their property extend over your land? Or is it their stone shed extending over your land eg...

Nobody seems to have raised the point but have you got your wife back yet!