I have been asked several times at check-in if I would like to upgrade using miles but never when leaving LHR.
If it is available it is easy to upgrade with miles at check-in as long as you have an upgradeable ticket. You do have to pay extra taxes usually.
Upgrades once you leave check-in are harder as mostly they are uable (or incapable) of deducting miles/taxes at the gate. 'some' lounges are able to do this.