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First you have to have the Starship Refits technology.
Then you can select any ship and click the "Refit" button -- the orange icon with the plus sign. Counterintuitively, the ship must be in open space and can't be in orbit or in a shipyard.
This will give you the Refit menu, which might give you a few options to upgrade to the latest design within that hull class. Or it might be empty if nothing is available.
You have to pay the difference in credits between the old model and the new one, and wait a number of turns for the upgrade to complete. You can do this anywhere, but the number of turns it takes depends on how close the ship is to a shipyard, so ideally it's right next to one.
To be honest it rarely seems worth it unless you're loaded with cash, but there you go.
It feels cheaper to just build a new version and faceroll the older one into something.