Disabling the "space around zones" setting does not work for custom templates. Even when editing the "Selected layout" with Space around zone disabled, the duplicated template has it enabled again.
After switching to a default template and then back to the custom layout I see the space was removed in the custom layout too.
I'm also experiencing this issue. I followed the steps that @rzippo mentioned and able to correct the problem. This definitely seems like unintentional and undesired behavior. Is there any plan to work on this in the near future?
I seem to be having the opposite problem as everyone else... I've made a new Custom template but I can't figure out how to apply space around the zones without manually resizing each new zone. Should the "show space around zones" option apply to new custom templates?
v0.18.1
Adding reference https://github.com/microsoft/PowerToys/issues/1032
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After switching to a default template and then back to the custom layout I see the space was removed in the custom layout too.