Primary & Test Domains Migration

Hi, I am looking to replace my WP site with a new theme but only have 1 hosting domain account. I was thinking of installing WP into a ‘dev’ folder, then upload the new theme, work on it before moving it across to the primary domain. This would allow me to have the main site live until ready to roll out the new version.

1 – Would I be able to retain the database with all blogs, posts etc and have new theme point toward that?
2 – When new site is ready is it best to wipe all files of current theme & move new theme across or will a simply upload of new theme & dewactivate of old theme create a new directory for new site?
3 – Is the above option even required, could I just edit any paths to make subdomain the primary domain?

Kind regards

Gary