My experience with VS and BA has always been that:
- They have one allocation of seats that are for pure miles purchase
- They have another allocation of seats that are upgradeable
- Give them some cash - and you will get more bangs for your buck!
If you buy the cheapest Economy fare - it is not upgradeable with anything. So you have to buy a Y ticket that costs more than the basic, in order to use your miles. This change came about quite some years ago and cannot be got round.
The consensus of these forums has always been that using miles for an upgrade is just about the best value you can get. OF COURSE, there are a million variations by each carrier and their own scheme and any offers they might be running.
Yes, you will have to pay taxes in cash.