Conversion chainline issues

Track wheel will be the standard 120mm spacing so I figure to make up the 6mm.I add 2mm spacer at each side then screw tighten the rest.

Hubjub sell 3mm spacers for this exact purpose - probably worth paying the money to do it right.

I'm unsure how to tackle the chainline as the rear hub is old 105 7speed so assume the spacing 126mm.

Read this http://sheldonbrown.com/chainline.html
You'll learn how to work out which BB to buy to get a perfect chainline.

If I get a new BB can I just use my current cups with the new spindle and shell to get the desired chainline? Is there anything I need to do with the rear?

AFAIK you should be able to use the same cups but I'd wait for someone who actually knows for sure.