When Upgrading your software using a remote SQL Connection you will receive an error saying the backup could not be made or restored, do not worry as the data still resides on the SQL Server.

After installation has completed go to Services and change to run the Management Utility as a Domains user that has SQL Administration rights.

Go to IS Administration and Change the IIS Application Pool - Select Classic .Net and choose the Advanced Settings on the right hand menu.

Select Identity and press the button next to Local System to change it.

Choose Custom Account and press the Set button

Enter the Domain Username and Password that has administrative rights to the Server running the SQL database instance you are remotely connecting to.

Press Ok and apply change - you do not need to reset IIS.