Hello, 

What's the correct method on upgrading IPS 3.4.x version which is using old php 5.x env. Migrate the site on my another machine which has php 7.x and then upload the upgrade files? 

Anything else needs to be done or better option? Thanks

Please see our Guide for upgrades to legacy (unsupported) versions:

starting in the section titled "Unsupported Legacy upgrades to Invision Community". Follow the steps carefully.

You will need to update PHP and MySQL (if appropriate) before starting the upgrade.

Be sure to use the requirements checker:

after you have updated PHP, but before starting the upgrade, to make sure all required associated Extensions have been installed.