This is seems to be covered fairly well in
install.txt included in the PHP zip downloads.
Quoting from that file ...
Manual Installation Steps
Upgrading from a previous PHP version: Previous editions of the
manual suggest moving various ini and DLL files into your SYSTEM
(i.e. C:\WINDOWS) folder and while this simplifies the installation
procedure it makes upgrading difficult. We advise you remove all of
these files (like php.ini and PHP related DLLs from the Windows
SYSTEM folder) before moving on with a new PHP installation. Be sure
to backup these files as you might break the entire system. The old
php.ini might be useful in setting up the new PHP as well. And as
you'll soon learn, the preferred method for installing PHP is to
keep all PHP related files in one directory and have this directory
available to your systems PATH.
With that caveat, should just be a matter of installing new version of PHP in new folder and updating IIS config to use the new path.