For the testing purposes, I did a similar setup on my second Flint.

I was able to narrow the proboem down to internet killswitch.

Scenario:
Vpn connected and VPN policies enabled
Everything seems to work as intended.

If I also enable Internet killswitch, local traffic works fine but it kills internet connection.

It has to be noted that after enabling killswitch, ping/tracert on IPs still works, but if I try to ping/tracert a domain name, it times out, so I suppose it has something to do with DNS maybe.