I have DS1 (almost 5y) and DS2 (3y). Once the eldest has outgrown his stuff it goes straight into younger sons wardrobe. I keep pretty much everything, from coats and jackets to t shirts and pyjamas. I get rid of bobbly stuff and anything with rips and tears or stains that won't come out. That doesn't mean DS2 never gets anything new. I occasionally pick bits up for him in the sales, or if he needed something like pjs or trainers. But he doesn't usually need anything as I already have it saved from ds1.
Recently mil and fil saw the boys in their winter coats which I just took out from storage. Ds1 had a brand new one on and ds2 was wearing ds1's old coat from last year. Still in fantastic condition and was only worn for a few months. They've been making comments to DH asking why we're always dressing him in old clothes. I mean he's a 3 year old he literally couldn't care less what he's wearing? He wouldn't even know or remember that it's his brothers old coat. And it's not like he never has new stuff just for him as I'm regularly going sales shopping. So were they being unreasonable??